Flashing a company card at a business lunch feels like you've finally arrived. It also eliminates the burden of carrying business expenses on your own personal credit card. But corporate credit cards can come with a hidden risk: They can tarnish your credit score.
Companies set up corporate card accounts using their own credit histories and issue cards to employees for business expenses and purchases.
Typically, the company pays for the charges on the credit card. If a payment is late, the card issuer goes after only the company. However, a third of companies that use corporate cards make employees liable for payment, putting their credit at risk, according to a 2009 survey from RPMG Research Corporation.
With individual liability accounts, the employee holds all responsibility for the charges, even if the company pays the issuer directly. Joint liability means the company and employee share the responsibility for payments, says Mahendra Gupta, author of the RPMG survey.
In both cases, if the card isn't paid and the account becomes delinquent, it will pop up on the employee's credit report and dent his or her credit score, says Barry Paperno, consumer affairs manager at myFICO.com.
It doesn't matter if the company was supposed to make the payment; the repercussions fall on the employee.
"It will impact your score no differently than if you were late on one of your own accounts," Paperno says.
How do you know if you are liable?
For one, the company's corporate card policy often states what kind of liability is on the account and how it will affect your credit. If your company has to run a credit check or asks for personal information like a Social Security number before issuing a card, it's probably on your credit report.
For that reason, it's a good idea to get a free credit report and check it out yourself. Thanks to federal law, you can request a free copy of your credit report once every 12 months from each of the three major credit reporting agencies through AnnualCreditReport.com.
If you're still in the dark about liability, ask the accounts payable department.
Stay on top of payments
If you're liable for the corporate card payments, but the company is the one cutting the check to the credit card issuer, should you trust the process?
"The safest rule of thumb is, if a card has your name on it, do your best to make certain it is being paid on time," says Clifton O'Neal, spokesman for credit reporting bureau TransUnion.
Generally, the card issuer will send a billing statement to you and the company if you are liable. Otherwise, ask the accounts payable department to notify you when the bill is paid.
Filing expense reports right away ensures the company can approve expenses and pay the bill or reimburse you quickly. To cut down the hassle of reporting, follow these simple tips:
- Track your receipts. Make sure they show the date and what was purchased. Take advantage of mobile applications, or apps, that allow employees with smartphones to record expenses on the go.
- Stay within company card policy. If you charge something that the company said it won't pay for, you'll be on the hook for the charges. And throwing in personal charges out of convenience, even if you plan to pay the company back, could get you in trouble with the accounting department.
- Know the process so you can file correctly. Cut corners and the card payment may get hung up.
- File on time or risk a late payment.
If an account isn't paid on time, contact the accounts payable department. It's possible an unapproved charge or missing receipt is holding up the process. Or maybe you filed your expenses too late.
Jennifer Bernstein, an employee at a business information company in New York, sometimes files her report late. Bernstein, who charges up to $1,000 a month on business travel, ends up paying the bill herself so it's on time. Then she seeks reimbursement.
"It's my credit if it doesn't get paid," Bernstein says.
But if the company was lax in paying the bill, ask for a letter explaining why the bill wasn't paid and that it wasn't your fault, says Phil Cavoretto, director of disbursement at BJC HealthCare, a nonprofit health care organization in St. Louis.
"Then contact the three credit reporting agencies to get the delinquency expunged from your credit report," he says.
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