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If you’re looking to open a business credit card, don’t expect it to necessarily give your personal credit score a boost. While some banks do report business credit activity to the same credit bureaus that track personal credit histories, others report activity only to commercial credit bureaus that track business credit histories.
This may seem confusing, especially because many banks ask applicants to personally guarantee their business credit cards with their Social Security number. This protects the bank in case the card user defaults on payments and is typically required if they don’t have an existing business credit history.
Keep reading to learn everything you know about how business credit cards work.
How Is a Business Credit Card Different Than Personal?
Credit reporting. The biggest difference between personal and business credit cards is where your credit card activity is reported. In the case of your personal credit cards, your card activity is always reported to the three consumer credit bureaus. Business card activity, on the other hand, is reported to commercial credit bureaus that specifically track business credit behavior and can be used to generate your unique business credit score. And many business credit cards report both to personal and commercial credit bureaus.
Banks will generally report only negative payment history on business cards to the consumer credit bureaus, but it varies from bank to bank. If you’re worried that past late payments on a business credit card might impact your personal credit score, contact your bank to ask if they report those payments to consumer credit bureaus.
Regulations. Another key difference between business and personal credit cards is how they are regulated. The Credit Card Act of 2009 provides protections to consumers, including enhancing disclosures and limiting the fees and charges on personal credit cards. Those protections don’t apply to business credit cards, which could result in higher fees. For example, the American Express® Business Gold Card carries an annual fee of $295 (see rates and fees), $45 higher than its consumer counterpart, the American Express® Gold Card (see rates and fees).
Perks. Finally, because personal and business credit cards are designed with different customers in mind, they offer different perks. Business credit cards tend to have higher average credit limits than consumer credit cards, according to Experian. Most business credit cards have perks designed for business needs (for example, cash back on office supplies), while personal credit card perks are specifically tailored to individuals and families (like cash back on groceries).
|Business Credit Card||Personal Credit Card|
|Eligibility based on your business and/or personal credit history||Eligibility based on your personal credit history|
|Reports to commercial credit bureaus and sometimes consumer credit bureaus||Reports to consumer credit bureaus|
|Higher average credit limits than personal credit cards||Lower average credit limits than business credit cards|
|Perks designed for businesses||Perks designed for individuals|
|Fewer protections and potentially higher rates and fees than personal credit cards||More protections and potentially lower rates and fees than business credit cards|
Does A Business Card Affect Your Personal Credit Score?
A business credit card can impact your personal credit score in a few key ways. Here’s how:
New credit inquiry: If a business does not have sufficient credit history to qualify for a business credit card, the card issuer may require the business owner to provide a personal guarantee (eg: your own credit history). In that case, the company will run a hard inquiry on your personal credit, and you’ll be personally responsible for the company’s debts if the business can’t pay them. That hard inquiry will likely be reported on your consumer credit report and could briefly ding your credit score. New credit inquiries account for 10% of your FICO score.
“Even if you have an LLC or are incorporated, they might want you to put in your Social Security number as a personal guarantee,” explains Nathan Grant, Senior Credit Industry Analyst at Credit Card Insider. “It’s still not going to be reporting the daily charges to your personal credit report, but if your account becomes delinquent, they need to have someone be liable, especially at first when the business has no credit history.”
Payment history: Some banks do report both on-time and late payment activity to consumer credit bureaus. That means your personal credit score could be impacted by your business credit activity. On the other hand, some banks only report negative payment activity to consumer credit bureaus. You should check with the credit card company that issued your card to be sure you’re clear on how they report payments. Here’s a list of the business credit card reporting policies for major credit card issuers, according to Bankrate:
|Credit Card Issuer||Reports business credit card activity to consumer credit bureaus?|
|Capital One||Reports all activity|
|Chase||Reports in the case of default|
|Discover||Reports all activity|
|Bank of America||Does not report|
|Citi||Does not report|
|Wells Fargo||Does not report|
|PNC||Does not report|
|American Express||Reports in the case of default|
Credit limit usage. If your business credit card does report activity to the consumer credit bureaus, you should use some standard best practices to be sure your personal credit is protected. For example, aim to keep a low balance on your business card relative to the total limit (even better, pay it off in full each month when your statement is generated).
Should You Get a Business Card for Your Small Business?
A credit card can be a valuable tool for your business. Just as it’s important to build your personal credit history, it’s important to build the credit history of your business. The earlier you apply for a credit card, the sooner you’ll be able to leverage it for other purposes.
While a business credit card can be beneficial, it’s likely not right for every business. According to Tom Thunstrom, a small business finance expert with FitSmallBusiness, there are a few situations where a business credit card might not be the right choice.
While your business credit card activity won’t regularly report to your personal credit report, late payments and delinquent accounts can still damage your personal credit score. Therefore, it’s important to use your card responsibly.
First, if you decide to implement a credit card into your business’s financial strategy, it’s important to have clear policies in place upfront.
“Where it’s not a good idea to get one is when a business doesn’t have its financial policies figured out, such as who’s responsible for managing money,” Thunstrom said. “You have to have pretty clear guidelines for how that card is going to be used.”
“Another situation where it may not make sense is where a business runs into issues making payments and staying on top of their finances,” Thunstrom said. “If they get behind on the payments or have problems paying their rent, then it’s probably not a good idea to add a credit card to that situation. It’s just another burden of debt that they’ll have to pay at some point.”
Just like a personal credit card, a business card is only a valuable tool when used responsibly. If you miss payments or build up excessive debt, then you could damage your business’s credit history moving forward.
Which Business Credit Card Is Right For You?
Just like personal cards, each business credit card has its own unique characteristics and perks. When it comes to choosing the right card, find one that offers a bonus that will benefit your business and terms that suit your needs. Keep in mind that the more generous the perks are, the more likely a card will charge a substantial annual fee.
“Just like if you were getting an individual credit card, look at your needs as a business and find credit cards that fit,” Grant said. “You never want to sign up for a credit card and have that card shape the way you spend your money.”
Some business credit cards — like the Capital One Spark Cash for Business — offer cash back on all purchases. Others may offer bonuses on travel and other business-specific expenses. An example of a card with these features is the Ink Business Preferred® Credit Card. Head over to see the full list of our favorite business credit cards for 2021.
Capital One Spark Cash for Business
- Intro bonus:$500
- Annual fee:$0 intro for first year; $95 after that
- Regular APR:20.99% (Variable)
- Recommended credit:670-850 (Good to Excellent)
- Learn more at our partner’s secure site.
Ink Business Preferred® Credit Card
- Intro bonus:100,000 points
- Annual fee:$95
- Regular APR:15.99% to 20.99% Variable
- Recommended credit:670-850 (Good to Excellent)
- Learn more at our partner’s secure site.
American Express® Business Gold Card
For rates and fees of American Express® Business Gold Card, please click here