Key Takeaways
- You might not see a business credit card make a difference on your credit report unless you default on the account.
- Expect to provide a personal guarantee for a business credit card, which means you’re responsible for the debt even if your business fails.
- Some credit card issuers routinely report business credit activities to consumer credit reporting bureaus, but most only report negative information – and some no information at all.
Business credit cards can affect your personal credit score, but you probably won’t notice much of a difference unless you get behind on payments. Understand how business credit cards can influence your personal credit and what you can do to protect your personal credit history if you’re using a business credit card.
Do Business Credit Cards Appear on Your Credit Report?
Usually, you won’t see business credit cards as a tradeline on your credit report, though there are exceptions. Specifically, you should expect to see a hard inquiry when you apply for a business credit card.
Unless there’s negative information to report, that’s likely to be the extent of it for most business credit card issuers. However, Discover business cards and some Capital One business cards routinely report card activity to consumer credit bureaus.
Why Personal Credit Matters for Business Credit Cards
Credit card issuers usually evaluate your personal creditworthiness when approving business credit cards. You’ll generally need to provide both personal and business information and allow the credit card issuer to do a personal credit check before you’re approved for a business credit card.
You should also expect to provide a personal guarantee, which means if you don’t pay your business credit card, you’re still personally responsible for the debt – even if your business fails.
“If you sign a personal guarantee, then it’s really a consumer debt at that point because you’re personally liable,” says John Ulzheimer, a credit expert formerly with FICO and the credit bureau Equifax. “If the card has a personal guarantee, it can be reported at any time.”
When Business Cards Affect Your Personal Credit Score
Generally, business credit cards can affect your personal credit score with a hard inquiry when you apply for the card and with negative information if you don’t make payments as agreed. There are also some credit card issuers that routinely report business credit card activity to consumer credit bureaus.
- Credit check. When you apply for a credit card, the card issuer will likely do a credit check using your personal credit history. The credit check will appear as a hard inquiry on your credit report for two years. A hard inquiry generally has a negligible effect on your credit score, reducing your score by up to five points and having less of an effect over time.
- Late payments or default. For many issuers, business credit activity isn’t reported to consumer credit bureaus, but the major exception is negative information. Some card issuers report to consumer credit bureaus if you’re late paying your bill. And if you default by missing multiple payments, you can expect a business card issuer to collect on your personal guarantee – which involves negative personal credit reporting. Even if an issuer doesn’t report negative credit information, a third-party collection agency that buys your defaulted account generally will.
- Card issuers that report activity. While most credit card issuers only report negative business credit activity on your personal credit report, there are exceptions. Discover cards and some Capital One business cards routinely report all business credit activity to consumer credit bureaus, good or bad. That means a business credit card could be good for your personal credit if you’re making on-time payments and not using too much of your available credit. However, your credit may be negatively affected if you have a high credit utilization ratio or a history of late payments.
If you’re issued an employee card as an authorized user, don’t expect to see a credit check inquiry on your credit report. However, the card’s balance may appear on your credit report, just as it does when you’re an authorized user on a personal credit card.
Here’s how major business credit card issuers report business credit card information on your personal credit:
You can expect a default or missed payments on a business credit card to affect your personal credit just as a personal credit card would, says Sameer Gupta, CEO of credit card optimization tool Uthrive and former director of product innovation for American Express. “Those events are important to the credit bureaus and considered in score calculations. They will likely have a negative impact on your credit score and impact on your future credit card applications.”
Understand that even if a credit card issuer doesn’t report negative information, a third-party collection agency may take your account if you default. Once the account hits collections, you’re likely to see it on your personal credit report.
How to Protect Your Personal Credit
As you’re using business credit cards, you can protect your personal credit using the same principles you should use for consumer credit cards: don’t use too much credit and always make on-time payments.
Use these tips to protect your personal credit while using a business credit card:
- Avoid charging more on your business credit cards than your business can afford to pay comfortably. It’s easy to get behind on payments if you’re overspending.
- Keep your balance low relative to your credit limit. A high credit utilization on a business credit card that reports all activity to consumer credit bureaus can drag down your personal credit score.
- Always pay your credit card bill on time. Payment history is the most important factor for your credit score, so if your business credit card reports a late payment on your personal credit report, that can hurt your credit.
- Use other options if you’ll carry a balance subject to interest. If you’re financing a major business purchase, a business credit card may not be the best option unless you can get a 0% introductory APR and pay off the balance before interest charges start to accrue. Consider a business loan or other business financing options instead.
Gupta says issuers understand that revenue can fluctuate depending on business cycles and are, in many cases, open to working with you on adjusting the payment schedule. “Tell the issuer about any adverse situation that might affect your payments and let the issuer work with you to ease you through a challenging year,” he says.
