How Does a Business Credit Card Affect a Credit Report?

You’ve probably wondered when is the right time to apply for a business credit card if you’re starting to build your career. Having a corporate credit card helps you get rewards as the cost of doing business is covered. Additionally, making all your purchases using a business credit card makes it easier to calculate taxes. It is advised to separate your personal and business expenses.

However, remember that your credit and business credit are interlinked and impact each other. Since a few business credit card lenders report accounts to the three major consumer credit bureaus, the utilization of your corporate credit card affects your personal credit by either raising it or lowering it.

Read further to better understand how these cards affect personal credit and how you can achieve a high personal and business credit score.

How is Personal Credit Affected By Business Credit?

Business credit cards impact your credit score from the minute your business credit card application is processed until it is received.

Lenders place hard inquiries on your credit report when you apply for a corporate credit card, resulting in a dip in your score by a couple of points.

What is a Business Credit Card?

Your business credit history and business credit score start building the minute your corporate credit card is activated. Just like your personal score, the business credit score is impacted by several factors, such as the utilization of credit, history of payment, and the length of credit. Business credit scores are public and grade debtors on a 1 – 100 scale, unlike personal scores, which range between 350 – 850.

Some business card transactions affect both businesses as well as personal credit scores, whereas certain activities affect the business score. This mostly depends on the credit card lender and what they opt to report. The purchases you make using a corporate credit card add to your credit utilization ratio, which indicates that a high balance on your business card can negatively impact your personal credit if a creditor reports all your corporate card transactions to both consumer and business credit bureaus.

It works the same way for negative entries and less-than-stellar business credit utilization. On the contrary, a business credit card can also increase personal credit scores as long as you ensure and exhibit responsible usage of the card and your lender reports the correct activity to consumer credit bureaus.

Why is Personal Credit Affected When Applying For a Corporate Credit Card?

Before issuing a credit card, lenders and creditors conduct a credit check on your credit report. They need to guarantee that the consumer will pay back the money borrowed and an indication of the consumer is a good credit risk. Due to a lack of business credit build-up, lenders assess your personal credit and use it as a measure to observe your general credit behavior.

What Do Creditors Report To Credit Bureaus?

How a business credit card affects personal credit depends on the policies stated by a lender.

Not every credit card issuer reports the same details to the three credit bureaus; Experian, Equifax, and TransUnion. A few lenders report a user’s business card activities, which indicates that a corporate credit card can affect your personal credit score and history positively or negatively. Other credit card issuers report the business credit card details to the bureaus only when a person defaults on a payment.

The reporting policy stated by business credit card issuers is as follows:

How Can Personal and Business Credit Be Balanced?

It is popularly believed that personal and business credit are two different things. Still, a corporate credit card also affects the credit score, so it is necessary to know how to manage finances without pulling your personal credit score.

The following tips can be useful in keeping both your business and your personal credit scores high.

– Monitor Your Credit Score Regularly

It is advised to frequently check your personal as well as business credit scores to know your financial standing with consumer and business credit reporting agencies and how it can be improved if necessary.

– Responsible For Credit Card Utilization

Aim to pay the full credit card balances each month. A big chunk of money in interest is saved this way and protects your personal and business credit scores. Paying full business and personal balances is deemed necessary, especially prior to shutting down a credit account. Your credit score will remain undisturbed if you close an account with a $0 balance on your credit report.

A high utilization ratio can harm your business credit score. Therefore, it is advised to maintain the utilization rate at 30% or below.

– Make Careful Business Purchase Decisions

Small business owners apply for business credit cards to earn rewards on their daily purchases using the card. Others utilize their cards to cover day-to-day business expenses or invest in mass purchases for their business.

Although the interest charged on business credit cards is tax-deductible, carrying a big balance on your card is not advisable and making big business purchases is also not recommended. Paying off your business credit card balances over time holds back your available credit, negatively impacting your credit score. In addition to that, small business loans offer better interest rates and loan agreements, so it is a better suggestion than making big purchases using your business credit card and accumulating a high balance on it.

– Don’t Let Your Personal Credit Behavior Affect Your Business

Personal credit and business credit are interlinked; therefore, a low personal credit score can result in fewer options when shopping for business credit. It is suggested to build up your credit score to a point where lenders consider you a good credit risk and issue you a business credit card instead of having to use a secured business credit card.

Bottom Line

Initially, applying for a business credit card or small business loan will result in a hard pull in your credit report and personal credit score, pulling your score down as personal credit is affected by business credit.

Once you have been issued a business credit card, your credit habits and utilization of the card will impact your personal credit score. Your payment history and balances are a part of your personal credit history as lenders report business card activities to consumer credit bureaus. Responsible usage of your business credit card is advised to ensure that it does not negatively impact your personal credit. Maintain a credit utilization ratio of 30% or below, pay off your balances, and make sure to pay your bills on time.