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How does business credit affect personal credit?

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If you’re starting a small business, building a freelance career or even picking up a side hustle, you’ve probably asked yourself whether it’s time to open a business credit card. Business credit cards help you earn rewards as you cover the costs of doing business. Plus, putting all of your business purchases on a business credit card can make your life a lot easier when it’s time to do your taxes. It’s important to keep your business and your personal expenses separate, for that reason alone.

But keeping your business expenses separate from personal expenses doesn’t mean your business credit and your personal credit won’t influence each other. Many people don’t realize that some credit card issuers report business credit card accounts to the consumer credit bureaus—which means that the way you use your business credit card could raise or lower your personal credit score.

How does business credit affect personal credit?

Do business credit cards affect personal credit? Yes, starting from the minute you complete your business credit card application. When you apply for a business credit card, a lender will often conduct a hard credit inquiry into your personal credit. Every hard credit pull has the potential to lower your personal credit score by a few points, so be prepared to see a slight dip in your score.

What is business credit?

When you open a business credit card, you start building both a business credit history and a business credit score. Much like your personal score, your business credit score rises and falls according to the length of credit, credit utilization, payment history and other factors determined by the business credit rating agencies. Business credit scores grade borrowers on a 1-100 scale, unlike personal credit scores, which fall between 300-850—and unlike personal credit scores, business scores are public.

Some small-business lenders, including the U.S. Small Business Administration, have started using the FICO Small Business Scoring Service (SBSS) to determine small business creditworthiness. The SBSS issues business credit scores that range between 1-300, and lenders can use SBSS data to evaluate both your personal credit history and your business credit history.

This means that it’s a good idea to keep both your personal and your business credit in good standing.

Does all business credit activity affect personal credit?

Some activities from some business cards can affect both personal and business credit scores, while others will influence only your business score. It all depends on what the credit card issuer chooses to report. If your business credit card issuer reports all of your business credit card activity to both the consumer and business credit bureaus, the purchases you put on your business credit card could be factored into your total credit utilization ratio—which means that carrying a high balance on your business credit card could have a negative effect on your personal credit score.

The same goes for missed payments and other less-than-stellar credit card usage. On the other hand, your business credit card has the potential to boost your personal credit score—as long as you use your business credit card responsibly, and as long as your credit card issuer reports that activity to the consumer credit card bureaus.

Why does applying for a business credit card affect personal credit?

When you apply for a business credit card, you provide a personal guarantee that you’ll pay off your debt. This gives lenders a reason to check your personal credit before issuing you a business credit card. Lenders want some kind of indication that you’ll use your business credit card responsibly—and if you don’t have a lot of business credit built up, they’re going to use your personal credit as the primary indicator of your overall credit habits.

What do issuers report to the credit bureaus?

How does a business credit card affect your personal credit? It depends on the credit card issuer.

Not all credit card issuers report the same information to the three major credit bureaus (Equifax, Experian and TransUnion). Some issuers report all business card activity to the bureaus, which means that your business credit card could either have a positive or negative impact on your personal credit history and credit score. Other issuers only report business credit card information in case of default.

Here’s the reporting policy for business credit cards by issuer:

Issuer Reports all activity Reports in case of default
Capital One Yes, with the exception of Spark Cash Plus cards Yes
Chase No Yes
Discover Yes Yes
Bank of America No No
Citi Yes Yes
Wells Fargo No No
PNC No No
American Express No Yes

How to balance business credit and personal credit

Many people assume that business credit and personal credit are totally separate—but since your business credit card can affect your credit score, it’s worth knowing how to manage your business finances in a way that will help you grow your business without hurting your personal credit (and vice versa). Here are some tips to help you keep your business and personal credit scores as high as possible.

Check your credit scores

You probably already know the importance of regularly checking your credit score—and if you have a business credit card, it’s a good idea to check your business credit score as well. The more you know about where you stand with the business and consumer credit bureaus, the better prepared you’ll be to improve your credit, if necessary.

Use your credit cards responsibly

The best way to improve your credit is to use your credit cards responsibly—whether you’re using a business credit card or a personal one. Missed payments on your business credit cards could have a negative effect on both your business and your personal credit scores. Even something as simple as running up a high credit card balance could affect your personal credit, so try to pay off both your business and personal purchases regularly.

Think carefully before making large business purchases

Some small-business owners get business credit cards so that they can earn rewards on everyday business purchases. Other business owners use their business credit cards to cover low cash flow months or fund large business purchases. While business credit card interest is tax-deductible, that doesn’t mean it’s a good idea to carry a large balance on your business credit card—and it might not always be a good idea to put a big business purchase on plastic.

Like personal credit cards, it’s best to use small-business credit cards for purchases you plan to pay off in full immediately. Putting a big purchase on a business credit card and paying it off over time ties up a lot of your available credit, which could have a negative effect on your credit score.

And if you’re at the point where you want to invest in your business but don’t have the funds to cover the expense, a small business loan could offer better terms and interest rates. Consider all of your options before putting a large business purchase on your credit card, and be aware of the effect it might have on your credit.

Don’t let your personal credit habits hurt your business

A lot of people are worried about business credit affecting personal credit—but remember that it also goes the other way around. If your personal credit score isn’t great, you might have a hard time getting credit for your business. While secured business credit cards are always an option, it’s a better idea to build your credit score to the point where lenders are willing to give you a business credit card.

The bottom line

Business credit affects personal credit. Applying for your first business credit card will trigger a hard credit inquiry on your personal credit, which could lower your score by a few points. And lenders might continue to conduct personal credit inquiries when you apply for additional small-business credit cards or small business loans.

Once you have a business credit card, the way you use it could affect your personal credit score. If your credit card issuer reports business card activity to the consumer credit bureaus, your balances and payment history could become part of your personal credit history. The best way to ensure that your business credit does not have a negative effect on your personal credit is to use your business credit cards responsibly. Make all of your payments on time, pay off your balances regularly and keep your balances low.

 

Written by
Nicole Dieker
Personal Finance Contributor
Nicole Dieker has been a full-time freelance writer since 2012—and a personal finance enthusiast since 2004, when she graduated from college and, looking for financial guidance, found a battered copy of Your Money or Your Life at the public library. In addition to writing for Bankrate, her work has appeared on CreditCards.com, Vox, Lifehacker, Popular Science, The Penny Hoarder, The Simple Dollar and NBC News. Dieker spent five years as writer and editor for The Billfold, a personal finance blog where people had honest conversations about money. Dieker also teaches writing, freelancing and publishing classes and works one-on-one with authors as a developmental editor and copyeditor.
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