Opening a small-business credit card can be a smart move for business owners looking to separate their business expenses from their personal ones. It can also provide access to valuable rewards and perks that can benefit your business. However, one important consideration that many business owners overlook is how their business credit card activity can affect their personal credit.
While some issuers only report business card activity to business credit bureaus, others may report your activity to consumer credit bureaus as well. This means that your business credit card activity could impact your personal credit score, even if you pay your bills on time and in full every month. Understanding how business credit cards affect personal credit is crucial for making informed decisions about your finances.
How Business Credit Cards Affect Personal Credit
If your business credit card activity appears on your personal credit report, it will have the same impact as the rest of your credit cards. This means that if you stop paying your credit card bill, you will be held responsible for what’s owed. Some issuers, such as American Express and Chase, require both joint and several liability, meaning that both you and your business are liable for repayment. As a result, they may report your card activity to one or more business credit bureaus.
Business credit bureaus, including Dun & Bradstreet, Equifax, and Experian, look for trends in business credit card activity similar to those of consumer bureaus. Payment history is a key factor in determining your business credit score, along with the amount of money owed, your business establishment history, and any negative marks on your credit report. About two-thirds of your credit score is determined by your payment history and credit utilization, so it’s important to pay your bills on time and keep your credit utilization low.
Credit Reporting by Issuers
We contacted several issuers to ask about their reporting policies on small-business credit cards. While some issuers were more forthcoming than others, they all indicated that they make a hard inquiry on your personal credit report during the application process. A hard pull can cause a temporary drop in your credit score, but regular reporting of activity can have more lasting implications, especially if your business runs up large monthly credit card bills.
Some issuers, such as American Express and Chase, explicitly state that they report business card activity to both consumer and commercial credit bureaus. Others, like Capital One and Barclays, have been less clear about their reporting practices, but reader reports suggest that they may report business card activity to personal credit bureaus in some cases.
What Types of Activity Are Reported?
The types of business credit card activity that are reported to credit bureaus can vary by issuer. American Express and Chase report business card account information to both consumer and commercial bureaus, while Barclays reserves the right to report to others and may obtain consumer and business credit reports. Capital One has previously acknowledged that it reports to both types of bureaus, while Citi business cards are typically not reported on personal credit reports.
Ultimately, it’s important to understand how your business credit card activity can impact your personal credit score. By paying your bills on time, keeping your credit utilization low, and being a responsible cardholder, you can minimize the negative effects on your personal credit. If you find that your business credit card activity is being reported to consumer credit bureaus, consider reaching out to your issuer to discuss your options and potentially switch to a card that offers better reporting practices.
In conclusion, business owners should carefully consider the potential impact of their business credit card activity on their personal credit. By understanding how business credit cards affect personal credit and taking steps to mitigate any negative effects, you can effectively manage your finances and protect your credit score. Remember to pay your bills on time, keep your credit utilization low, and communicate with your issuer if you have any concerns about how your business card activity is being reported. By staying informed and proactive, you can make smart decisions that benefit both your business and personal finances.