As a dedicated member of the NAV universe, you already know there are two credit reports that small business owners can build, utilize, and leverage for operational growth. It’s that of your personal credit report and your business credit report.
However, knowing this information, some business owners wonder what happens to their business credit once they open credit cards? For this article, I wanted to shed some light on this discussion. First, let’s review the two types of reports.
Personal Credit Report: This is established the moment you get a social security number give or take, and is automatically updated by the major personal credit reporting agencies of Experian, EquiFax, and TransUnion. In terms of national measurement, anything under 579 is considered to be poor, 580 – 669 is considered to be fair, 670 – 739 is considered to be good, 740 – 799 is considered to be very good, and 800 – 850 is considered exceptional.
Business Credit Report: This must be created and strategically managed by you in order to build it to the point of where it can get your business access to major lines of credit and other financing that can be used for growth. Business credit report information is not automatically updated, instead, you have to make sure that vendors and creditors report the payback data to the major business credit reporting agencies of Experian Business (Intelliscore Plus) and Dun&Bradstreet (PAYDEX Score). The measurement scales run from 1 to 100, with anything over 80 being considered the top tier.
Separation Of Reporting Does Not Mean Separation Of Pull
So when your business applies for business credit cards, a good majority of the time, the business credit card issuer will require a personal credit report pull and even a personal guarantee, which means you will be personally liable for the business debt should the business go under.
This also means that both your business credit profile and personal credit profile should be built to good standing in order to assure approval. This also means that you are going to obtain an inquiry on your personal credit report for the credit pull (as well as on your business credit report) and personal credit inquiries account for about 10% of your personal credit score. Too many personal inquiries (over 5 within the last 2 years) can ding your personal credit score.
If you happen to fall behind in paying on your business credit cards, this is likely to hurt both your business credit and personal credit standings, as both reports are likely to be negatively impacted.
Note, that if you are successfully paying down your business credit cards on time, that information is likely to only be included on your business credit report, but it just depends on the business credit card issuer’s policies at the time.
When The Business Card Is Placed On Your Personal Credit Report
If the business credit card is placed on your personal credit report, then your average credit age along with credit utilization ratios will be impacted. This is why it’s important to learn how a business credit card issuer operates in this regard, to determine how they are going to report the payment history going forward (such as reporting to just business credit bureaus, or business and personal credit bureaus).
Your goal is to get them to only report the information on your business credit report, so as to not “tie down” your personal credit report with outstanding business related financing.
From my experience, companies like Capital One and Discover might report to both personal and business bureaus, whereas companies such as AMX, BOA, and Wells Fargo might only report when there’s negative information/late payments.
The Final Word
In addition to other information provided in this article, other tips include my recommendation of only applying for credit cards that you actually are going to use and need. The reason being, is that you don’t want to get into the habit of having to close credit cards, as closing them can also negatively impact both your personal and business credit reports.
Also, make sure to continue monitoring both your personal and business credit score, using the monitoring programs of NAV. You can sign up right now and take advantage of various tools for strategic management of both credit reports.
This article was originally written on November 8, 2017 and updated on December 10, 2020.