Can a business credit card impact your personal credit score?

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The intersection of personal and business credit is a curious one — particularly for small business owners who are just getting off the ground.

The fact of the matter is, keeping your finances completely separate is wishful thinking. It’s extremely difficult — if not impossible — to keep personal and business credit lines from influencing one another. While some card issuers may be more helpful in doing so than others, most business owners will need to rely on their personal credit at some point.

For example, what happens when you apply for a business card in the first place? How does the issuer gauge whether or not you’re creditworthy? And, what happens if you add an employee as an authorized user and they overspend so that you can’t meet your minimum payment? With certain checkpoints, there’s no place for creditors to look other than your personal credit history.

Know before you apply

None of the following is meant to scare you off from applying for a business credit card.

Quite the opposite, in fact. Choosing a business credit card is a great option for small business owners who are looking to spread their large purchases out over time, cover costs during seasons of low cash flow and even earn rewards on guaranteed expenses.

More than anything, it’s important to stay aware of how closely intertwined your personal and business credit accounts truly are.

Read up on business credit scores

The moment you open a business credit card, you’ll start building your business credit — a separate score unique to your business accounts.

Much like your personal score, your business credit score raises and lowers according to the length of credit, credit utilization, payment history and other factors determined by the business credit rating agencies. Unlike personal scores, however, business scores are public. They also grade borrowers on a 1-100 scale, unlike personal scores which fall between 300-850.

Some activity from some business cards can have an effect on both personal and business credit scores, while others will influence your business score alone. Comb through the details of every business card agreement and consult the review sites like ours so you know where your activity will be reported, and how much influence it’ll have on your personal credit.

Remember your credit utilization ratio

Your credit utilization ratio is the total amount of credit you’re putting to use, divided by the total amount of available credit you have on your lines of credit. Say, you have three credit cards — each with a $5,000 limit. If you have a $3,000 total balance over those three cards, you’d have a 20% utilization rate ($3,000 / $15,000).

Why is that relevant to your business cards? Some issuers will factor your business card into your personal utilization rate, while others won’t.

Make sure you know what you’re dealing with — business cards tend to have higher limits, which could have a heavy influence on your utilization rate. If you’re putting large expenditures on your business card, that could throw off your utilization rate.

Do business credit cards report/pull from my personal credit?

Applying for your first business card often requires a hard inquiry into your personal credit history. With nowhere else to draw from, your potential lender’s due diligence could reach into anywhere you’ve proven (or not proven) yourself as a borrower — personal credit being the most obvious case.

Since hard inquiries are known to put a small dent in your credit score, expect a small dip on your next credit report. Holding all other things constant, your score should get back to where it was within six months to a year as the inquiry flakes off.

What happens if I default on my business credit card payment?

For small businesses, most business card providers will make you sign a personal guarantee, which is roughly equitable to co-signing… for yourself. Essentially, a personal guarantee promises that if you fail to pay your debts on your business card.. That gives your lender the right to go after your personal assets — all credit lines included.

Nearly all small business credit card agreements have some personal guarantee written into them, so in the eyes of the law, your personal credit will always have a tie to your business credit.

As time goes on and your business builds a credit history of its own, your personal credit may diminish in importance — but the guarantee still remains. So, if the worst happens and you default on your business credit card then you will still be personally liable for the debt.

Are there business credit cards that don’t impact my personal credit?

It depends on your issuer and the card in question. Here’s the reporting policy for business credit cards by issuer:

Issuer Reports all activity Reports in case of default
Capital One Yes Yes
Chase No Yes
Discover Yes Yes
Bank of America No No
Citi No No
Wells Fargo No No
PNC No No
American Express No Yes