Does opening a business credit card affect your credit score

A business credit card can provide a lot of value to both new and seasoned business owners.

It can help you establish a business credit history and provide useful rewards and perks that can make your life a little easier.

But depending on the business credit card you choose and how you use it, it can also help or hurt your personal credit score. Before you pick a card for your business, it’s important to understand how it can affect your personal credit and what you can do to prevent damage.

3 ways a business credit card can affect your personal credit score

From the moment you apply for a business credit card until you close your account, it can have the potential to help improve your personal credit or tarnish it. Here’s how:

The initial credit inquiry

Almost every time you apply for a credit card or loan, the lender will run a hard inquiry on your personal credit report, and that’s no exception with most business credit cards.

“It’s really tough to evaluate [small business owners] purely on their business profile,” says James Garvey, CEO of Self Lender, a company that offers credit-builder loans.

That’s especially the case for new companies that don’t yet have a business credit history.

“You’re probably going to have to do personal guarantee as well,” adds Garvey, “where you guarantee that in the event that the business defaults on payments, you’re liable to repay the debt.”

Business credit card issuers will run your personal credit to determine whether you’re likely to make good on that promise.

Fortunately, a hard credit check won’t do much to your credit. If there’s any impact at all, FICO estimates that it will take fewer than five points off your credit score. The only exception is if you apply for multiple credit cards and loans in a short period, which could be a sign that you’re in trouble financially.

Delinquent payments

Most major credit card issuers don’t report all of your account activity to the consumer credit bureaus. Some, however, may report negative information if you’re delinquent on a payment or your account isn’t in good standing for some other reason.

Here are some card issuers with some more specific terms:

• American Express may report activity if your account isn’t in good standing.
• Bank of America may report account activity if you’re delinquent on payments.
• Barclays may report account activity in certain situations.
• Chase reports account activity if a payment is 60 days delinquent.

Your payment history is the most important factor in your credit score, so a delinquent payment could decrease your score by several points. What’s more, the late payment could make it difficult to get approved for credit for personal use.

Also, the credit card issuer could invoke the personal guarantee, requiring you to foot the bill personally.

“Small business owners should absolutely strive to pay on time,” says Garvey, “because you don’t want to be personally liable for business debt in a worst-case scenario.”

High credit utilization rate

While it’s uncommon for a business credit card issuer to report your monthly account activity to the consumer credit bureaus, some do. Of the major card issuers, Capital One and Discover are two examples of this.

The problem that this setup can create is if your business tends to spend a lot each month, the card issuer may report a high balance on your personal credit report, potentially dropping your credit score significantly because your credit utilization ratio will go up (“amounts owed” is the second-most important factor in your FICO score).

That’s exactly what happened to Mike Kolb, founder of Xwerks, a Florida-based nutrition product maker. Kolb applied for two Capital One credit cards to take advantage of limited-time offers, but then his credit score dropped 137 points because the bank reported high balances.

“It looks like I have tens of thousands of dollars in credit card debt when in reality I am just using [the cards] to buy inventory,” he says. “I always pay my balance in full.”

Since that initial plummet, Kolb’s credit score has bounced back by 73 points, which he attributes to having lower balances lately. Once he earns the cards’ sign-up bonuses, Kolb plans to switch back to his American Express business credit cards, which don’t report balance information on the regular.

Unfortunately, business credit card issuers typically don’t disclose upfront whether they report information to the consumer credit bureaus.

“Whether they do report or don’t report is very critical to how you may use the card or if you want the card at all,” says Mike Kinane, former head of U.S. Bankcard at TD Bank, “so ask the question. Do your research.”

Tips for preventing a business credit card from ruining your personal credit

Depending on which card you choose and how you use it, a business credit card can either help or hurt your credit score. Here are a few things you can do to ensure only positive things get reported:

Get a card that doesn’t require a personal guarantee

Most small business credit cards won’t approve your application without a personal guarantee, but some will if your business is well-established.

“Above a certain amount of revenue or [other financials], you may move into what some banks call a corporate card, which isn’t underwritten based on the individual’s personal credit,” says Kinane. “It’s based on the business’s credit history.”

The threshold for approval with these cards can vary, however. For example, American Express requires at least $4 million in revenue during your most recent fiscal year, while Capital One sets the annual revenue bar at $10 million.

The Brex Card, on the other hand, recommends that your business have at least $100,000 in your company bank account at the time of your application and be backed by a venture capitalist firm.

If you can qualify for one of these cards, you’ll not only skip the initial credit inquiry, but you also don’t have to worry about having any information reported going forward.

Always pay on time

Whether your business credit card reports only delinquent activity or all of your activity, it’s essential to pay your monthly bill on time every month, and preferably in full.

“If you get in a situation where you’re carrying a large balance on an ongoing basis, and you don’t have a plan to pay it down,” says Garvey, “it can get really nasty really quickly.”

By establishing a positive payment history, you can prevent negative information from being shared with the consumer credit bureaus and also potentially help boost your personal credit score.

Time your monthly payments

If you have a credit card from an issuer that reports all of your account activity, a simple way to avoid a high credit utilization rate is to pay your balance a day or two before the bank reports to the consumer credit bureaus. In general, this happens on the statement date, but call the card issuer to double-check.

Alternatively, you can make multiple payments throughout the month to keep your balance relatively low at all times. Keeping your business credit card balance at a healthy utilization rate can have a positive impact instead of a negative one.

Bottom line

If it’s time for you to open a business credit card, make sure you do your research when you look for the best fit. Compare different cards not only to find the best deal but also to make sure that its rewards align with your personal spending habits. And before you apply, check your personal credit reports to make sure all of the information in them is accurate — this will give you a snapshot of your credit health and help you choose the cards you’re more likely to qualify for.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

Ben Luthi is a freelance writer who specializes in credit cards and all things personal finance. He is passionate about helping people gain clarity in their finances and to take actionable steps to improve their lives.

Does opening up a business credit card affect your personal credit?

Does a business credit card help my credit score?