How do business credit cards affect personal credit scores?

Key takeaways

• On-time payments and low balances are ideal for keeping your personal credit score healthy
• Applying for a business credit card often requires hard inquiries and personal guarantees
• Some credit card issuers report to both business and consumer credit bureaus

When you’re starting a business, getting the funding you need is an essential step. One of the simplest ways to cover your business expenses is by securing a credit card for your company. But while a dedicated business credit card can keep your personal expenses separate and allow for cleaner bookkeeping, it may impact more than your business credit score. So how do business credit cards affect personal credit?

With nearly half of U.S. small business owners—including over 50% of Black and Hispanic business owners—relying on personal credit scores to obtain funding, it’s clear that business and personal finances often intermingle. Here are the facts about how business credit cards affect your personal credit and how you can protect your score.

Do business credit cards affect personal credit scores?

Business credit cards can certainly affect personal credit scores. While some company cards can reduce your risk in some ways—for example, they allow for easier tax preparation, so you can avoid IRS penalties—many affect your personal credit when you apply for and use your available credit.

Applying for a card

When you apply for a small business credit card, you can expect almost all issuers to require a personal guarantee. This guarantee is a legal promise that you’ll make on-time payments for the amount you borrow. If your business fails to do so, your personal credit score can take a hit. Plus, if your company defaults on payments—which occurs when you completely miss payments within a set time frame—your business credit card issuer can hold you liable and dig into your personal assets to get what they’re owed.

Some credit card companies will also look at your personal credit history to decide whether or not to lend to you in the first place. Obtaining a loan often requires good personal credit—often defined as scores of 670 and above—especially when you’re a new startup without established business credit. It’s a good practice to check your personal credit score before applying for a business credit card so you have an idea of where you stand. 

When running a credit check, lenders often leave a hard inquiry that will slightly drop your personal credit score. Hard inquiries can stay on credit reports for two years, but the negative impact will usually end after 12 months.

Using your business credit card

Different lenders have varying policies when it comes to reporting to the three consumer credit bureaus—TransUnion, Equifax, and Experian. For example, here’s how some well-known issuers are known to handle business credit card activity as of June 2021:

• American Express: Reports to consumer credit bureaus when in poor standing
• Bank of America: Reports to consumer credit bureaus if delinquent (when payments are late)
• Capital One: Always reports to consumer credit bureaus; possible exception for Spark credit cards
• Chase: Reports to consumer credit bureaus if delinquent over 60 days
• Citi: Only reports to business credit bureaus
• Discover: Always reports to consumer credit bureaus
• Wells Fargo: Only reports to business credit bureaus

While choosing brands like Citi and Wells Fargo will mainly affect your business credit, companies such as Capital One and Discover can impact your personal score for better or for worse.

As a cardholder, you should look into your credit card issuer‘s policies to see how your usage may affect your personal credit score.

4 ways to keep your business and personal credit in good standing

Naturally, you’ll want to keep both of your credit scores healthy when using your new business credit card. While hard credit inquiries and personal guarantees are hard to avoid when you apply, the way you use your card matters in the long term. Here are four tips for building strong personal and business credit with proper card usage.

1. Pay balances on time

Late payments are a surefire way to hurt your business credit, and they often give issuers a reason to report to consumer credit bureaus. At the very least, your company should make minimum payments on time.

Ideally, you should pay your credit card balance in full. If you can’t do that, keep your total debt as low as possible. A high balance—often the result of not paying in full—can lead to a lower credit score. Plus, keep in mind that you must pay your remaining balance with interest, and credit card interest rates are notoriously high compared to rates for standard small business loans.

If you’re struggling to make your minimum payments, reach out to your business credit card provider. Many issuers are willing to work out payment plans with business owners, so you can avoid defaulting on your payments.

2. Keep your credit utilization ratio low

Your credit utilization ratio is the percentage of your available credit that you’re currently using. Keeping your credit utilization low is key for healthy credit scores.

Just as with personal credit cards, experts suggest keeping business credit card utilization under 30%, ideally under 10%. For example, if your credit limit is $10,000, your business should keep your balance at $1,000 or less. Doing so will keep your credit scores as high as possible.

If your credit utilization rate reaches or exceeds 30%, this can negatively impact your credit scores—perhaps severely if you’re going well over 30%. When you need to use your credit card for a purchase that will take you above the 30% threshold, consider making more than one payment in a month.

Don’t forget to keep an eye on your credit limit too. Some issuers won’t inform you before lowering your limit, which can affect your utilization rate. If you notice any changes, contact your issuer to understand why your credit limit was changed and how you can get your original one restored.

3. Apply for a corporate credit card

Corporate credit cards are ideal for protecting your personal credit as well as your personal assets. This type of card rarely requires a personal guarantee or impacts personal credit, even if you go out of business.

However, there are a few major caveats: To have a corporate card, your business typically needs to reach $4 million annual revenue, have 10 employees, and maintain S corporation or C corporation status.

4. Monitor your credit report regularly

Monitoring your personal credit score with a free tool like Credit Sesame can help you spot any issues before they affect your ability to borrow in the future. Keeping an eye on your credit will ensure there are no errors or fraudulent activity affecting your score. And if mistakes or fraud do occur, you can quickly resolve the issue and keep your score on track.

Regular credit monitoring can also help you understand how your credit checks, credit card usage, and other activities are currently impacting your score. This way, you can avoid submitting new loan applications when hard inquiries are still driving your score down, or you can adjust your credit utilization as needed.

Make your personal credit shine

Do business credit cards affect personal credit? Yes, but as a business owner, you can consider this an opportunity. When you use your credit card wisely—whether that’s by paying on time (and in full) and keeping your credit utilization low—you can strengthen your personal credit. At the same time, you’ll be getting the funding you need to grow your small business, which can eventually help you become eligible to apply for a corporate card.