Business credit cards have the potential to impact your credit for good or for bad, just like any other type of financing. But whether or not the account has an effect on your credit depends on a few important factors.
- Will the business credit card issuer check your personal credit report?
- Does the account appear on your credit report?
- Have you paid the business credit card late?
- What is the credit utilization rate on your business credit card?
Let’s take a deeper look at each of these four questions.
1. Will the Business Credit Card Issuer Check Your Personal Credit Report?
In most cases, a card issuer will check your personal credit report and score when you apply for a new business credit card. This is known as a hard credit inquiry, and it can have a small but temporary negative impact on your credit score.
Hard inquiries may impact your FICO® Score for up to 12 months. However, inquiries typically don’t have much weight where credit score calculation is concerned—especially when compared with more important credit score factors like payment history. A good rule of thumb with hard inquiries is this: You shouldn’t be afraid to apply for new credit when you need it as long as you seek new credit responsibly.
2. Does the Account Appear on Your Credit Report?
Many business credit card issuers report to one or more of the business credit reporting agencies each month—, Equifax and Experian. This practice could help your company establish business credit.
A few business credit card issuers send monthly updates to the personal credit reporting agencies too. If your business credit card issuer has this policy, that means the account could show up on your personal credit report alongside your other current tradelines. And if the business credit card is present on any of your personal credit reports, it will have an impact on your personal credit scores.
Depending on your situation, you might view the presence of a business credit card on your personal credit as positive or negative. On a positive note, the account could help you build a better personal credit score. As you consistently on time and the account grows older, that positive impact could grow stronger.
However, if your company’s account has a negative payment history (i.e., late payments, default, collection, etc.), it could set your personal credit score back. The same could be true if your company keeps a high balance on the account relative to its credit limit.
3. Have You Paid the Business Credit Card Late?
Most business card issuers only report to the business owner’s personal credit reports when there’s a problem. So, if your company pays late or defaults on its account, there’s a risk that the business credit card could show up on your credit report. If that occurs, the negative account could hurt your personal credit score and perhaps trigger a chain reaction of other problems.
Late payments can be a serious problem where credit scores are concerned. And if your card issuer reports that you paid late to both the commercial and consumer credit bureaus, the derogatory marks could damage both sets of credit scores.
On the consumer side, late payments can remain on your credit report for up to seven years. Payment history is also worth 35% of your FICO Score. So, when you fall 30 days or more behind on your payment, you’re taking a big risk.
Bad credit scores and a history of late payments can also make it difficult for you to borrow money again in the future. You may have fewer financing options available, and the lenders that are willing to work with you will probably offer higher interest rates and less attractive borrowing terms. As a business owner, this could affect your company’s ability to qualify for new financing too.
4. What Is the Credit Utilization Rate on Your Business Credit Card?
If a business credit card shows up on your personal credit report, the balance of that account will appear too. Credit scoring models, like FICO and VantageScore, will consider the balance-to-limit ratio on those accounts, otherwise known as your credit utilization ratio.
A high credit utilization ratio is not good for your personal credit score. (It’s not good for certain business credit scores either, like FICO SBSS, for that matter.) On the other hand, if your company’s credit card does not show up on your personal credit report, its utilization rate will not affect your personal score at all.
