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As a small business owner, it makes sense to keep your personal and business finances separate. The same is true of your credit reports. Whenever your business needs to borrow money, it’s best to do so in the company’s name and keep your personal credit separate.
Yet most business financing options, such as business credit cards, come with the requirement of a personal guarantee. According to the Federal Deposit Insurance Corporation (FDIC), 96% of large banks and 86% of small banks evaluate personal guarantees when small businesses apply to borrow money.
You may work hard to keep your personal and business credit separate but a personal guarantee can muddy the waters in certain situations. Here’s a breakdown of when a business credit card has the potential to damage your personal credit rating, and some tips on how to avoid this problem.
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Annual Fee
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Regular APR
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For business owners who max out the 50k annual spending on the bonus categories, the rewards are substantial for a no-annual-fee card. Preferred Rewards for Business members can make out like a bandit with the 25-75% rewards bonus. The foreign transaction fee means it’s best to keep this card at home when traveling overseas.
Pros & Cons
- Introductory APR offer on purchases
- 3% cashback rate on the spending category of your choice
- Preferred Rewards for Business members earn a 25-75% bonus
- Foreign transaction fee
- 2% and 3% bonus categories have a combined annual spending cap of $50,000
- No intro APR offer for balance transfers
Card Details
- Get a $300 online statement credit after you make at least $3,000 in purchases in the first 90 days of your account opening.
- Earn 3% cash back in the category of your choice: gas stations & EV charging stations (default), office supply stores, travel, TV/telecom & wireless, computer services or business consulting services, 2% cash back on dining purchases and 1% cash back on all other purchases.
- You’ll earn 3% cash back on purchases in the category of your choice and 2% cash back on dining purchases on the first $50,000 in combined choice category/dining purchases each calendar year, 1% thereafter.
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- Choose how to redeem your cash rewards-as a deposit into your Bank of America® checking or savings account, as a card statement credit or as a check mailed to you. Cash rewards don’t expire as long as your account remains open.
- To change your choice category for future purchases, you must go to the Mobile Banking app or Business Advantage 360, our small business online banking. You can change it once each calendar month, or make no change and it stays the same.
- 0% Introductory APR on purchases for your first 9 billing cycles. After the intro APR offer ends, a Variable APR that’s currently 18.49% to 28.49% will apply.
- Contactless Cards – The security of a chip card, with the convenience of a tap.
- This offer may not be available if you leave this page or visit our website. You can take advantage of this offer when you apply now.
Get a $300 online statement credit after you make at least $3,000 in purchases in the first 90 days of your account opening.
Credit Score ranges are based on FICO® credit scoring. This is just one scoring method and a credit card issuer may use another method when considering your application. These are provided as guidelines only and approval is not guaranteed.
The Personal Guarantee Explained
Agreeing to a personal guarantee on a business credit card or loan essentially makes you a co-signer for your company. In the event your business doesn’t repay the lender as promised, that lender may be able to come after you personally to seek repayment for the debt. This personal promise is the lender’s way of reducing risk when it loans a business money.
Part of a personal guarantee may also include language that allows the lender to report details about the account to the personal credit reporting agencies—Equifax, TransUnion and Experian. This is where the potential for personal credit score damage comes into play with a business credit card.
Many lenders will only report a business account to the personal credit bureaus if something goes wrong (such as late payments or default). However, some small business credit card issuers opt to report business credit cards to both business credit reporting agencies and the personal credit bureaus every month.
Business Credit Cards and Your Personal Credit
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. We’ll cover each of these scenarios in more detail below.
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 very real 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.
Which Business Credit Card Issuers Report to the Consumer Credit Bureaus?
Wondering whether a business credit card will appear on your personal credit report. You can reach out to the card issuer to receive the most up-to-date information about its credit reporting policy. In the meantime, here’s a helpful cheat sheet.
| Business Credit Card Consumer Credit Reporting Policies | ||
|---|---|---|
| Credit Card Issuer | Account Activity Reported to the Consumer Credit Bureaus | |
| American Express | Negative activity only | |
| Bank of America | None if the card is in good standing | |
| Capital One | All activity for some accounts* | |
| Chase | Negative activity only | |
| CitiBusiness | None | |
| Discover | All activity | |
| PNC | None | |
| U.S. Bank | None | |
| Wells Fargo | None | |
*Capital One used to report all business credit card activity to the consumer credit bureaus. As of 2020, the bank may no longer report credit activity to the consumer credit bureaus for its Capital One Spark Cash for Business credit card customers.
Is a Business Credit Card a Good Fit for You?
There are many reasons to consider opening a business credit card. Here are a few of the perks business credit cards have to offer.
Business credit cards can:
- Help you establish a good business credit rating. Building good business credit could save your company money and make it easier to borrow money in the future.
- Separate your personal and business finances. The separation of personal and professional expenses makes accounting and tax preparation easier.
- Improve your company’s cash flow. Thanks to a business credit card’s grace period, you have the opportunity to use your credit line as an interest-free loan of sorts. Just make sure you pay the full statement balance by the due date if you wish to avoid paying expensive interest fees.
- Offer you valuable rewards. One of the most enjoyable perks of a business credit card comes in the form of rewards. If you open a rewards business credit card, you may be able to earn miles, points, or cash back on the everyday purchases your company makes.
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Bottom Line
Many people can qualify for business credit cards, even startups and those who don’t own traditional companies. Being self-employed or running a side hustle might even qualify you to open a business credit card with some card issuers.
If you’re ready to open a business credit card, it’s always a good idea to start with some research. You can compare available offers to find out the best deals available and to try to match rewards perks with your business’ spending habits.
Don’t forget to review your personal credit reports from all three credit bureaus before you apply, and perhaps your scores as well. Checking your credit does several things. It can help you make sure the information on your reports is accurate. And when you know where your credit stands, you’ll be in a better position to choose business credit cards that you’re more likely to qualify for at present.
