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How does a business credit card affect personal credit?

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If you’re beginning a small business, developing a freelance career, or taking up a side gig, you may have considered opening a business credit card. These credit cards allow you to gain rewards while paying for business-related expenses. Additionally, using a business credit card to make all your business purchases can simplify tax preparation. Keeping your personal and business expenses separate is crucial for this reason.

Although you separate your business expenses from personal expenses, your business credit and personal credit can still be affected by each other. It’s important to note that some credit card companies report business credit card activity to consumer credit bureaus. This means that how you use your business credit card can impact your personal credit score positively or negatively.

Does business credit card use affect personal credit?

In most cases, yes- from the moment you submit your business credit card application. This is because a lender will typically perform a hard credit check on your personal credit, which could cause your credit score to decrease by a small amount. So, if you apply for a business credit card, expect to see a slight decrease in your personal credit score.

You can begin establishing your business credit score while running your business. Like your personal credit score, your business credit score will fluctuate based on factors such as how long you’ve had credit, how much credit you’re using, your payment history, and other criteria determined by business credit rating agencies. Business credit scores are graded on a scale of 1-100, unlike personal scores that range from 300-850. Additionally, your business credit score is public information.

Does all business credit card activity affect personal credit?

The impact on your personal and business credit scores varies depending on the activity mentioned in the business cards. This is determined by the credit card issuer’s reporting choices. If your business credit card issuer reports your business credit card activity to both consumer and business credit bureaus, any purchases you make could be considered in your overall credit utilization ratio. This means that having a large balance on your business credit card could negatively affect your personal credit score.

Using your business credit card irresponsibly, such as missing payments or other negative usage, can have a negative impact on your personal credit score. However, if you use your business credit card in a responsible manner and your credit card issuer reports the activity to consumer credit bureaus, it has the potential to improve your personal credit score.

Why does applying for a business credit card affect personal credit?

When applying for a business credit card, you must provide a personal guarantee that confirms that you are responsible for the debt, not your business. As a result, lenders will review your personal credit history to determine if you are a reliable borrower. If you don’t have a significant business credit history, your personal credit history will be the primary factor in evaluating your creditworthiness.

What do issuers report to the credit bureaus?

The impact of a business credit card on your personal credit score varies depending on the issuer of the credit card.

Different credit card companies report varying information to Equifax, Experian, and TransUnion – the three primary credit bureaus. Some issuers report all of your business card activity to these bureaus, which can positively or negatively affect your personal credit history and score. However, some issuers only report business credit card information if you default on payments.

How to balance business credit and personal credit

To ensure both your business and personal credit scores remain high, it’s important to manage your business finances in a way that doesn’t harm your personal credit score (and vice versa) since your business credit card can impact it. Here are some tips to help you grow your business while keeping both scores in check.

Check your credit scores

Checking your credit score regularly is crucial, and it’s also important to check your business credit score if you have a business credit card. Knowing your status with consumer and business credit bureaus will help you make informed decisions on how to improve it if needed.

Use your credit cards responsibly

To boost your credit, it is important to use your credit cards responsibly, whether it is a personal or business card. Failure to make payments on your business credit card can negatively impact both your business and individual credit scores. Additionally, even accumulating a high balance on your credit card can have an adverse effect on your personal credit, so ensure you pay off all your business and personal expenses frequently.

Think carefully before making large business purchases

Small-business owners use business credit cards for different purposes. Some earn rewards on everyday business purchases, while others cover low cash flow months or fund large business purchases. However, carrying a large balance on the business credit card is not advisable, even though the interest is tax-deductible. It may not always be wise to use a credit card for big business purchases either.

It is advisable to use small-business credit cards to make purchases that you can pay off immediately, similar to personal credit cards. Making a large purchase on a business credit card and repaying it gradually can limit your available credit and adversely affect your credit rating.

If you’re planning to invest in your business but lack the funds to do so, opting for a small business loan could provide you with better interest rates and terms. It is advisable to explore all your options instead of using your credit card to make a big business purchase and keep in mind the impact it could have on your credit.

Don’t let your personal credit habits hurt your business

It is commonly assumed that business credit impacts personal credit, but it also works the other way around. If your personal credit score is low, it may be not easy to obtain credit for your business. Even though secured business credit cards are possible, it is advisable to enhance your credit score to the extent that loaners are ready to provide you with a business credit card.

The bottom line

When you apply for a business credit card for the first time, it can impact your personal credit. You may experience a temporary drop in your personal credit score because of a hard credit inquiry. Furthermore, when you apply for more small-business credit cards or loans, lenders may continue to check your personal credit.

Using a business credit card may have an impact on your personal credit score. This is because if the card issuer reports your business credit card activity to consumer credit bureaus, your payment history and balances could be included in your personal credit history. To prevent your personal credit from being negatively affected, it’s important to use your business credit cards responsibly. This involves making timely payments, keeping your balances low, and regularly paying off what you owe.

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