Corporate vs. small business cards: Which is better for credit building?
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While small business and corporate credit cards are both used by businesses to make purchases, there are many differences between the two types of cards. The effect on cardholders’ credit scores is one factor, but that’s not the only variable. There’s a lot more that employees and business owners need to know.
When you apply for a small business credit card, the lender will probably check your personal credit score. This hard inquiry should temporarily trim a few points off your score.
Corporate credit cards are less likely to affect your personal credit score, although Experian reports that corporate card issuers sometimes check authorized users’ credit profiles, resulting in hard inquiries on their personal credit reports. For what it’s worth, I’ve had two corporate credit cards and neither affected my personal credit.
If you’re an authorized user on a small business credit card, the issuer is unlikely to check your credit. But derogatory information associated with the account (such as late payments or too much debt) could appear on your personal credit reports. The good news is that it’s usually easy to have those blemishes removed right away, if you request to be taken off the account. If you’re using a corporate credit card, late payments and other maladies shouldn’t affect your personal credit.
By the way, only a few notable small business card issuers report all account activity on personal credit reports (for example, Citi, Discover and some Capital One cards). If the account reaches default status, a much longer list of small business card issuers will ding your personal credit reports.
When you apply for a small business or corporate credit card, the lender will probably also check your business credit score (assuming your business has a credit profile). And your usage of a small business or corporate credit card certainly affects your business credit score.
Other key differences
Corporate credit cards are intended for larger businesses, often those with established track records that have at least a few years in business and $1 million or more in annual revenue. Small business credit cards are for smaller companies, of course, but also sole proprietors, freelancers, gig workers and the like.
A lot of people don’t realize that. You don’t necessarily need to have formally registered your business in order to sign up for a small business credit card. You can apply using your Social Security number if you don’t have an employer identification number from the Internal Revenue Service. One catch is that you’re only supposed to use the small business credit card for business-related expenses.
You would think giant companies that spend enormous sums of money would receive the best credit card rewards. While corporate card rewards can certainly add up at scale, they’re often pretty meager in terms of the rate the business earns on every dollar it spends — often no more than 1 cent in rewards for every dollar spent.
Rather than rewards, corporate credit cards are more likely to emphasize other selling points. These include large credit lines, plenty of extra cards for employees (potentially with customized spending limits), easy tie-ins with the company’s accounting and expense reporting software and the lack of personal liability.
Small business cards, on the other hand, often offer very generous rewards and other useful perks. As you would expect, their rewards tend to focus on business-friendly categories such as office supplies, phone and Internet service, travel, dining, online advertising and more. Small business cards regularly offer lucrative sign-up bonuses as well.
Corporate cards are typically backed by the business, whereas small business cards are much more likely to require a personal guarantee from the cardholder (likely the business owner).
In other words, if a small business goes under, the owner could be held personally responsible for paying the card issuer back. Their personal finances and personal credit score could suffer.
If you’re an employee using a small business credit card, chances are that you’re an authorized user, in which case you would not be liable for unpaid charges.
The bottom line
Corporate credit cards are tools that larger companies and their employees use to buy supplies and pay for travel, entertainment and other business expenses. If you use one of these, chances are it’s because your employer gave you one, and it won’t affect your personal credit score in most cases.
Small business credit cards are products that anyone can apply for (as long as they have a business purpose). These are much more intertwined with one’s personal credit history — especially if you’re the primary account holder.
Have a question about credit cards? E-mail me at email@example.com and I’d be happy to help.