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How does my business credit card impact my 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 is, total separation is wishful thinking. Once you establish a business credit score, it becomes extremely helpful to keep your personal and business credit scores separate, so you don’t have to lean on your personal credit score to access credit for your business.

However, it’s extremely difficult 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, when you apply for a business credit card, how does the issuer gauge whether you’re creditworthy? 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 and consequences, there’s no other place for creditors to look than your personal credit history.

How do business credit cards affect your personal credit?

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 review sites like ours so you know where your activity will be reported, and how much influence it’ll have on your personal credit. But to give you an idea into what we mean by influence, here are a few ways using business cards can impact your personal credit history:

New credit inquiries

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 once the inquiry flakes off.

Credit utilization

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 across all 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 percent 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 both the numerator and denominator in the math above. If you’re putting large expenditures on your business card, that could throw off your utilization rate. Keep in mind, experts suggest keeping your credit utilization below 30 percent.

Payment history

Much like a personal credit card, your payment history is arguably the most important contributing factor to a strong credit score. However, not all banks report both on-time and late payments to the credit bureaus. While some issuers will report that information, others will only report negative information. It is important to check with your credit card company so you are aware of how they report your payment information and to who.

Personal guarantees

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, you, as an individual, are still on the hook. That gives your lender the right to go after your personal assets—all credit lines included.

Nearly all small business credit card agreements have a personal guarantee written into them, although there are a few business credit cards with no personal guarantee. 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.

Issuer policies for business credit card activity

Whether or not an issuer reports your business card information to the credit bureaus varies. It is always best to confirm with your issuer as policies can change at any time, but here is where some of the major issuers typically stand on this topic:

Issuer Business card activity reported to commercial credit bureaus Business card activity reported to consumer bureaus
American Express Yes Yes, but only negative information
Bank of America Yes No
Capital One Yes Yes
Chase Yes Yes, if the account is delinquent
Citi Yes No
Discover Yes Yes
U.S. Bank Yes Yes, if the account is delinquent
Wells Fargo Yes No

Should you get a business credit card?

None of the following was intended to scare you off from applying for a business credit card—but quite the opposite. 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, this is a reminder to stay aware of how closely intertwined your personal and business credit accounts truly are.

From a behavioral standpoint, a line of business credit won’t absolve you of any less-than-perfect history with your personal card(s). Your spending habits are part of your credit record. If you’re having trouble staying within your limits, paying your balances or shaving down your debts, you’ll want to think long and hard before opening up a business account.

It’s the same user, whether your card has “business” in the name or not. If your credit score is in jeopardy, a business card could only compound matters by providing the temptation you’d be better off avoiding.

On the other hand, a business credit card can be an extremely valuable tool for business owners as they work to build credit for their growing business. A strong business credit score can bring a multitude of advantages to a business, including easier access to financing, lower insurance rates and even business investment opportunities. Because remember, investors can access your business credit score.

The bottom line

If you decide applying for one of the best small-business credit cards is the right step for your growing business, it’s important to understand how that may affect your personal credit history. If you can prioritize on-time payments and a steady credit utilization, you will be on your way to building strong business credit while protecting your personal credit.