Highlights
- When you apply for a business credit card, you’ll receive a hard inquiry on your personal credit, which may temporarily lower your credit score by a few points.
- It’s a good idea to keep your business and personal finances separate.
- In some cases, your personal credit can be affected when using a business credit card.
Do business credit cards affect personal credit?
When a business manages its credit wisely, it can be a gamechanger. It can positively influence cash flow, fuel steady growth and provide a safety net if times get tough. One common question business owners ask is if using a business credit card affects the personal credit of the business owner.
In this article, we’ll explore some considerations that business owners should weigh as they seek to maintain a healthy balance between business and personal credit.
How do business credit cards affect personal credit?
Business credit cards can, in fact, have an impact on personal credit, but the extent of the impact depends on a variety of factors. One consideration is the common requirement of a personal guarantee when applying for a business credit card. This means the business owner could be personally responsible for clearing the debt in the event that the business cannot meet its financial obligations.
While business credit cards primarily help to build and enhance a business’s credit profile, the weight of this personal responsibility should remind business owners to be diligent when opening and using credit. Positive payment history on a business credit card could potentially help your personal credit, including your credit score, available APRs and your eligibility for different types of credit card offers. The same can be true if you have a negative payment history — this could negatively impact your personal credit.
Below, we’ll cover several additional ways that a business credit card could affect your personal credit.
You’ll receive a hard credit inquiry when applying
Applying for a business credit card typically results in a hard credit inquiry to your personal credit. A hard inquiry occurs when a lender or creditor reviews your credit report as part of the decision-making process for a credit application. Essentially, it’s to assess your creditworthiness. When this is triggered, it may have a temporary (negative) impact on your credit score. While the effect is usually short-lived and only lowers your score by a few points, multiple hard inquiries within a short time frame can be a red flag to lenders.
Credit utilization may be affected
Business credit card balances can impact your personal credit utilization rate if you have a personal guarantee on the card, which means you’re personally responsible for the debt. In this case, the credit card activity on your business card may be reported to the credit bureaus. The card’s balance will contribute to your overall personal credit utilization.
A high credit utilization ratio can negatively impact your credit score. It’s recommended that you keep your credit utilization ratio below 30% on all credit cards, including business cards. Paying your balances off in full may help keep your utilization low.
Late payments and delinquencies may be reported
In a similar way, if you become delinquent on payments for your business, it can negatively impact your personal credit score. It's important to make on-time payments on all credit cards, both business and personal.
Does all business credit card activity affect personal credit?
Not all business credit card activity will impact your personal credit score. If the card issuer doesn't require a personal guarantee, the activity on the business card won't impact your personal credit. Some card issuers may report positive activity to business credit bureaus only, not personal credit bureaus.
It’s usually a good idea to check with the card issuer to understand how their reporting works before applying for a card.
Can my personal credit score be different than my business credit score?
Personal credit scores are calculated based on your personal credit history, and business credit scores are based on your business's credit history as well as financial performance. So yes, they can be different.
How to balance both business and personal credit
There are several ways you can balance both your business and your personal credit.
- Keep finances separate. It’s a good idea to keep your business and personal finances separate. Don’t make business purchases on your personal credit card and vice versa. This protects your personal assets and also helps at tax time.
- Manage your credit utilization. Try to keep your credit utilization lower than 30% and always aim to make payments on time.
- Monitor your credit reports. You’ll want to consider monitoring both your personal and business credit reports quarterly in case you spot any issues, such as unauthorized transactions or incorrect information. Addressing these errors promptly will likely prevent any negative impacts to your credit. Some financial institutions offer free credit monitoring tools and resources that help with this.
The bottom line
While business credit cards primarily impact your business credit, there can be some spillover effects on your personal credit. Be sure to understand the terms and conditions for each card so you can make informed decisions.
