Small business credit cards often offer many benefits, including valuable perks as well as access to a line of credit. If you’re shopping for a business credit card, you’ll probably focus on the benefits and rewards you can earn, as well as the annual fee and interest rate you’ll pay.
How a small business credit card may affect your personal credit scores may not be top of mind, but it’s worth considering. Here we’ll detail the major issuer’s policies about reporting small business credit card activity to consumer credit reports, and what you need to know as you grow your business.
How business credit cards affect personal credit
Business credit cards can impact your personal credit in several ways:
- Most (but not all) small business credit cards do not appear on the cardholder’s personal credit unless they don’t pay the debt.
- The majority of issuers reserve the right to report late payments to personal credit if the business defaults on the debt.
- A few issuers will report all payment history, positive or negative, to consumer credit reporting agencies.
- A very small number of card issuers will not report business credit card activity to personal credit under any circumstances.
- Finally, most small business credit card applications involve a personal credit check that will result in a hard inquiry on the applicant’s personal credit.
It’s also worth noting that most credit card companies will conduct a personal credit check when you apply for a business credit card, or personal credit card for that matter. This credit check creates an inquiry on the credit report accessed through Equifax, Experian or Transunion. (Some issuers will use a soft credit check to initially screen an application but most use a hard inquiry eventually. Hard inquiries affect credit scores.)
Individual credit inquiries generally do not have a significant impact on consumers’ credit scores, and the effect is often short-lived. But they can lower credit scores, so keep that in mind before you apply.
Also understand that most small business credit cards require the cardholder to personally guarantee the debt. A personal guarantee means that if the balance isn’t paid off by the business, the cardholder will be on the hook for the entire amount. Just because a business credit card doesn’t appear on your personal credit report, that doesn’t mean you can walk away from the debt without risking consequences to your personal credit reports and/or personal finances.
Business credit card information reported on owner/cardholder’s personal credit reports
|Bank of America||No||No|
|Capital One||Yes (some)*||Yes|
*Capital One activity is flagged as ‘small business’ when reported to personal credit reports. In addition, for new Spark Cash customers starting 10/20/2020, Capital One will no longer report to personal credit bureaus as long as an account remains in good standing.
**Wells Fargo generally does not report negative information to the owner’s personal credit, but reserves the right to do so.
Check with your card issuer for updated information. Copyright 2020 Nav Technologies Inc.
The difference between business credit and personal credit
Most business owners are familiar with personal (or consumer) credit reports. Credit reports compiled by credit reporting agencies such as Equifax, Experian and Transunion are used to create FICO scores and VantageScores as well as other custom credit scores. Anyone who has applied for a mortgage, car loan or personal credit card is likely at least somewhat familiar with this.
In addition, though, businesses may have credit reports and business credit scores. The major commercial credit reporting agencies that compile business credit reports are Dun & Bradstreet, Equifax and Experian. However, many companies offering small business credit cards and small business loans often also check consumer credit reports or scores because many small businesses (and especially newer businesses) don’t have robust business credit histories.
If you’re a small business owner looking for small business loans, good personal and business credit can help.
Should you get a business credit card that doesn’t report to personal credit?
Is it better to get a credit card that does or doesn’t report to personal credit? The answer depends on your situation. As long as you pay your business card on time and avoid high balances, having a business card that appears on your personal credit reports should not be a problem, and may even help your credit scores by adding positive payment references.
The trap that some business owners find themselves in is that they charge everything they can to their business credit cards to maximize rewards, or they find themselves carrying balances because they need to use the line of credit their credit card provides when cash flow is tight.
Even if you make every payment on time, the balances on your credit cards that appear on your personal credit reports may have a negative impact on your credit scores. Why? Credit scoring models take into account your “debt usage ratio” or “credit utilization ratio”, which compares the balances reported against available credit limits, often for each card as well as all credit cards totalled together.
Let’s say you have a $1000 credit limit on a credit card and the balance reported that month to the consumer credit bureaus is $350. That equals 35% utilization, which may be considered on the high side. (There’s no set percentage of utilization that’s too high— it depends on everything in your credit reports as well as the credit scoring model that’s used. But keeping utilization below 20% is often a safe move when it comes to most credit scoring models.)
On the other hand, if your personal credit history is a bit thin, a business card that reports your full account activity may help. For example, if you don’t have any open and active credit cards, your credit history may benefit from getting a credit card and establishing a positive repayment history.
Choosing a business credit card that does not report to personal credit may be helpful if you know there will be times you need to run up charges that put you close to the limit or carry a balance — think holiday inventory, or that big tradeshow, for example — and you don’t want that activity to bring down your scores.
Ultimately, you’ll have to decide whether having a business credit card that does or does not report monthly account activity on your credit reports is right for you. Either way, you’ll want to keep tabs on your personal and business credit scores, to make sure they are as strong as possible–and stay that way.
How to find the right business credit card for your business
Choosing the best business credit cards (and yes, you can have more than one) involves answering a few key questions:
- Will I carry a balance? If you anticipate needing to use the credit card to access a line of credit, the interest rate is very important. You may even want to consider a 0% balance transfer card.
- Do I want perks? Choosing a rewards card requires additional consideration. Even cash back credit cards may have different tiers of rewards based on the types of business expenses your business has. Researching the right rewards cards can be well worth it.
- What can I qualify for? Most small business card issuers— though not all— base their decisions largely on the applicant’s personal credit scores and income from all sources (not just the business). Most require good credit, though there are a few business credit cards available to those with lower credit scores.
Frequently Asked Questions
Can you build business credit without using personal credit?
Yes you can build business credit without using personal credit. Vendor (or net-30) accounts, for example, can help build business credit and don’t report to personal credit. However, many small business lenders check personal credit until the business is sufficiently established and earns significant revenues. Even then, traditional financial institutions often check personal credit.
Is business credit linked to personal credit?
Business credit reports and personal credit reports are kept completely separate. That’s true even of credit agencies such as Equifax and Experian, both of which have both consumer and personal credit reporting agencies. However, certain credit scoring models may use information from both personal and business credit to create a single credit score. The best example of this is the FICO SBSS score which can use personal and business credit data to create a FICO credit score used in small business lending decisions.
This article was originally written on November 23, 2015 and updated on March 3, 2022.