How business credit cards affect your personal credit

Business credit cards can be a good way to build your business credit. However, you should be aware that they will likely affect your personal credit as well. This is especially true if your business falls behind on payments or the account charges off.

From a business perspective, most experts will advise you to keep your personal affairs separate from your business. While this is sound advice, it can be hard to do with a business credit card.

This is not to say you should not do it. A business card is a great way to help build your business credit, but you will need to understand how it will affect your personal credit before moving forward.

Business credit cards affect your personal credit in three main ways:

When you are first applying for a business credit card, the creditor will likely look at your business history as well as your personal history. This usually means running a credit check on your report, which would cause a hard inquiry to appear on your personal credit report. This alone could cause your personal credit score to drop a few points.

A very important point to note during the application process is the personal guarantee. Creditors will make you sign a personal guarantee for the account, which means that if the business account ever falls behind on payments or the account charges off, you will be held responsible. Depending on the outcome, this could have a large impact on your credit score.

Business credit accounts operate a little differently than personal accounts. Many credit card issuers will not report all of your monthly activity to the major credit bureaus. It is up to them what to report and who they report to.

With that said, many of them will report any unusual activity, such as late or missed payments. If your business is more than 30 days behind on a payment, this will likely be reported to the credit bureaus. As you have signed the personal guarantee, this means the negative mark will end up on your personal credit report, damaging your credit score for up to 7 years.

This is not something to take lightly, as payment history is one of the most important factors all creditors will use to determine the future of both your business and personal credit.

Depending on the terms you agreed to, a late payment may also cause you to incur a penalty APR, which could be as high as nearly 30 percent with some cards.

Your business’ overall credit usage may also affect your personal credit score. This is because some creditors report all of your business account activity to one or more credit bureaus.

If they do, other issues on the reports may start to affect your personal credit scores. This includes your overall credit usage, called your credit utilization ration. Essentially, the more of your available credit you use, the worse it looks to a creditor.

Most experts agree the ideal credit utilization is between 25 and 30 percent. Any higher than this and you may notice a change in your personal credit score.

Business credit cards tend to have higher limits than personal cards, so there may be a bit more leeway here. With that said, if you need to make a larger purchase for your business that could affect your overall score, consider getting a business loan.

Some individual companies may have terms or practices that could affect your personal credit as well. Always thoroughly read through the terms you are agreeing to before signing for a business credit account.

If you are still shopping for a new account, call around to the major credit card issuers to talk about their individual terms.

A business card is still a great way to help build your credit. As with a personal card, the key is to build healthy credit behaviors, such as:

A business credit card can be a great way to build credit and open new doors for your business.

However, it is important to understand how and when to use the card. Overall, healthy credit habits can help keep your business credit card from negatively affecting your personal credit.