Although the initial hard credit inquiry may lower scores a bit, generally, business credit cards don’t directly affect personal credit. Usually, business credit cards will report activity only to commercial credit bureaus.
A business credit card can be a beneficial financial tool for business owners. Approximately 9% of American adults own their own business.1 You may consider applying for a new card if you need money for business expenses. The main perk of business credit cards is that you can separate your business and personal finances. But do business credit cards affect personal credit?
Read about how these cards work and how they affect your personal credit report before you inquire with business credit card issuers!
What Is a Business Credit Card?
A business credit card is a credit card meant for business expenses. Borrowers receive a credit limit that replenishes every time a payment is made, just like traditional credit cards. Large and small business owners can get a business credit card to purchase supplies, equipment, furniture, etc. While it may be possible to use business cards for personal expenses, most business credit card issuers prohibit personal purchases. Borrowers who violate the terms and conditions of their card agreement may be subject to legal consequences.
Understanding the Impact of Business Credit Usage on Personal Credit
| Aspect | Description | Impact on Personal Credit | Considerations for Consumers |
| Credit Limit Increases | Requesting a higher credit limit. | Indirect | A higher limit can imply greater financial responsibility but may require a hard inquiry, affecting personal credit. |
| Rewards and Perks Utilization | Using rewards and perks associated with the business credit. | None | Utilizing rewards doesn’t impact credit but can offer financial benefits to the business. |
| Card Type (Secured vs. Unsecured) | Choosing between secured and unsecured business credit. | Direct | Secured cards may require a personal deposit, linking them more closely to personal finances. |
| Interest Rates and Fees | The cost of borrowing on business credit, including APR and other fees. | Indirect | Higher fees or rates don’t directly impact personal finances but can affect the ability to pay, indirectly influencing credit score. |
| Card Usage for Personal Expenses | Using business credit for personal expenses. | Direct | Misuse can lead to complications with tax deductions and may affect personal finances if debt increases. |
| Foreign Transaction Policies | Policies regarding transactions made in foreign currencies or countries. | None | While not directly affecting personal finances, understanding these policies is crucial for international business transactions. |
| Credit Card Issuer Policies | Specific policies of the card issuer regarding reporting and credit checks. | Direct | Issuer-specific policies can greatly influence how business credit card usage is reported to personal credit bureaus. |
| Change in Business Structure | How changes in business structure (e.g., from sole proprietorship to LLC) might affect credit card agreements. | Indirect | Such changes can necessitate new credit agreements, potentially impacting personal finances due to reassessment of creditworthiness. |
Who Qualifies To Get a Business Credit Card?
Different types of business owners can qualify to get a business credit card. But remember that even if you are a qualifying business owner, you must still meet certain income and credit score requirements.
This is a general list of business owners that may qualify for business credit cards:
- Freelancers
- Sole proprietors
- Small business owners
- Large business owners
- Corporations
- Limited liability companies
What Information Does a Business Credit Card Issuer Need?
Suppose you want to apply for business credit. In that case, you should know that the approval process differs from traditional credit cards. Applicants must provide a lot more information because business credit card issuers have to verify the legitimacy of their business. In addition, business credit cards typically offer good credit limits that are significantly higher than personal credit cards.
When you apply for a business account, be ready to provide the following details:
- Your business name, address, and phone number
- Your personal information (name, address, annual income, etc.)
- Employer Identification Number (EIN) or Social Security number (SSN)
- The type of business industry
- Total years in business
- Number of employees on payroll
- Your annual business revenue
Remember that qualification requirements vary depending on the business credit card issuer you apply with. You may need to provide additional information that is not listed here.
Will Business Credit Cards Affect My Personal Credit Score?
Business owners typically get business credit cards to separate business and personal expenses. However, it may not be entirely possible to avoid affecting your personal credit history.
Business credit may affect personal credit for the following reasons:
You Apply for Business Credit
Your personal credit will ultimately change when you apply for business credit. To confirm your eligibility, the lender will require a credit check into your personal credit history. A credit check will decrease your credit score by a few points and will impact your personal credit reports. Inquiries for loans and credit cards will remain on a credit report for up to two years. However, your credit may only be negatively affected for twelve months.
The Lender Reports to the Consumer Credit Bureaus
Most major credit card issuers report your payment information to the credit bureaus. Updates are typically given once a month to one or more business credit reporting agencies. The three leading business credit reporting agencies include Equifax, Experian, and Dun & Bradstreet.
Your business credit card activity can directly affect your personal financial history. How? Suppose the business credit card issuer sends reports to personal credit reporting agencies. In that case, your monthly account activity will appear on both personal and business credit reports. When credit card issuers report to both types of credit bureaus, then your personal credit score will get updated as well. If you want to keep your business and personal accounts as separate as possible, ensure you ask about your company’s reporting policies.
You Pay the Business Credit Card Late
Suppose your business credit card issuer reports to one of the consumer credit reporting agencies, and you miss a monthly payment by more than 30 days. In that case, your late business credit card payment can appear on your personal credit report when the lender reports the late payment! Late payments can result in a severe credit score dip because payment history counts for 35% of FICO scores. You can lose a lot of points for just one late payment! In addition, a late payment that is more than 30 days behind will remain on your credit report for up to seven years.
Removing a late payment from your credit report early is impossible unless the information is incorrect. Negative accounts on your personal credit report can limit your loan options in the future. Many lenders are unwilling to work with consumers that pose a credit risk. Working to improve the payment history on your credit report can lessen the effects of negative information on credit reports.
You Agree to a Personal Guarantee
A personal guarantee is a binding promise made to the card issuer that states you will repay the outstanding debt if your business does not. Agreeing to a personal guarantee makes you a co-signer on the business credit card because you share financial responsibility.
A personal guarantee can directly affect your personal finances if the lender reports your payment history to the personal credit reporting agencies. If your business account defaults or misses a monthly payment, your personal credit score will decrease as a result.
You Maintain a High Credit Utilization Rate
Your credit card utilization is an essential factor that directly affects your credit scores. Credit utilization is the amount of debt you have in comparison to your total credit limit. A high credit utilization ratio indicates that you are a credit risk because you are having trouble managing your finances. If the business credit card appears on your personal credit report, the credit utilization ratio will decrease your score! Credit utilization counts for 30% of your total FICO score, so it’s better to maintain a low debt balance on your business credit card.
What Are the Benefits of Business Credit Cards?
Business credit cards are a beneficial financial tool for all types of business owners. But what are the perks of using a business credit card over other loan options? Read about some of the advantages below!
You Can Build Business Credit
Your business can build a credit score through a business credit card. Building your business’s financial profile can help you establish credibility. A payment history can make getting funding to grow or expand your business easier. Getting a business loan or credit card is difficult when you lack a business credit score. But working on getting a high business credit score can help you obtain low rates, high loan amounts, and better rewards!
You Can Get Higher Credit Limits
The maximum credit limit can be high with business credit cards. Do you need a lot of money to purchase equipment, inventory, and other business expenses? Then you could get sufficient cash through business credit. But remember that you may not have access to the maximum credit limit a business credit card issuer offers until you build business credit. However, you could still get a substantial spending budget if your personal credit score and income are exceptional.
Employees Can Get Credit Cards
If you obtain business credit, you can order additional cards for your employees to use. However, 27.1 million businesses are run by a single person and have no employees.2
Your credit card issuer may allow you to set spending limits and alerts so you can keep track of business expenses. Ordering credit cards for your employees may be free, but some card issuers may charge a small fee per card you order. In addition, some credit card companies may require all parties to be liable jointly and severally. This rule states that each cardholder can be held independently responsible for the credit card debt.
Should I Get a Personal Loan or Business Credit?
A personal loan may be a better option for certain business owners. If you are debating between applying for an installment loan or a business credit card, consider the following perks of personal loans.
- Bad Credit is OK – If you have a bad credit score, you may be better off with a personal loan. Qualifying for business funding can be extra challenging if your payment history is imperfect. But you may be eligible to get bad credit loans online if you can show proof of reliable income.
- Low Loan Amount – A personal loan may be ideal if you only need a small loan for business expenses. Personal loans range from a few hundred dollars to a couple thousand!
- Spending Flexibility – Unlike business credit, personal installment loans do not have strict spending limits. You can buy almost anything with your personal loan money.
- Fast Approval Process – The approval process is much faster with personal loans. Business credit card lenders require a lot of information to verify that your business is legitimate. But you could apply and get approval for a personal loan with specific lenders in as little as one business day.
Credit Cards For Business and Personal Finances: FAQ
Applying for business credit often requires a personal credit check, which can result in a hard inquiry on your personal credit reports. This might temporarily lower your personal credit score by a few points.
Yes, responsible use of a business credit, such as timely payments and low credit utilization, can help build your business credit scores. However, this depends on whether the card issuer reports to business credit bureaus or consumer credit bureaus.
Your personal finances can play a significant role in managing business credit, especially during the application process. Lenders often consider an individual’s personal financial history when issuing a credit card for business purposes.
To minimize the impact on your personal finances, choose a business credit card issuer that does not report to consumer credit bureaus. Additionally, ensure timely payments and maintain low credit utilization on your business card.
If you default on a business credit card, and you have provided a personal guarantee or if the issuer reports to personal credit bureaus, it can negatively impact your personal credit.
Inquiries for business credit can appear on your personal credit reports, especially if you personally guarantee the card. These inquiries are generally treated like any other credit inquiry on your personal credit.
Improving your personal credit using business credit is possible if the card issuer reports positive business credit card activity to personal credit bureaus. Consistent, on-time payments and low utilization can contribute positively.
The impact of business credit on personal credit can vary depending on the business structure. Sole proprietors might see more direct effects on their personal finances than those operating larger corporations or LLCs.
Changes in terms and conditions of your business credit card, like interest rate adjustments or credit limit changes, can indirectly affect your personal finances. These changes might influence how you manage the card’s balance and payments.
Thoughts From CreditNinja: Business Credit Cards and Personal Finances
Business credit cards are helpful for business owners because they can separate business and personal expenses. You can also build business credit by making continuous on-time payments every month. But, CreditNinja wants you to know that business credit cards can affect your personal credit.
However, you can take steps to minimize the impact on your personal credit score. When you are searching for a lender, CreditNinja suggests you ask if they report to both business and personal credit bureaus. Work with a credit card company that does not report to any consumer credit bureaus to reduce the impact a business credit card has on your personal credit.
Head over to the CreditNinja dojo for more free resources, debt calculators, and other free financial resources!
References:
- Established business ownership rate in North America, by country 2022 | Statista
- Small Business Statistics Of 2024 | Forbes Advisor
- Can A Business Credit Card Hurt Your Personal Credit? │ Forbes Advisor
- Will Your Business Credit Card Show Up on Your Personal Credit Report? │ Experian
- 8 Things To Know Before You Get A Business Credit Card │ Forbes Advisor
