Do business credit cards affect personal credit?

For business owners, a business credit card is a great way to keep business and personal expenses separate—but there are a few things to consider first, like how it could impact personal credit.

Business credit cards may affect personal credit scores if the issuer reports business credit card information to the consumer credit bureaus. In that case, credit scoring factors like your personal credit utilization ratio and payment history may be affected. Keep reading to learn more.

What you’ll learn:

• Business credit cards are a good way to separate personal and business-related expenses.
• Business credit cards aren’t the same as corporate cards, so they can potentially affect your personal credit.
• Usually, issuers don’t report business cards to consumer credit bureaus unless the account is delinquent, which may affect your personal credit.
• Practicing responsible credit use with your business card can help build your business’s credit profile and history while maintaining and preserving your personal credit. 

For new business owners, like start-up founders or sole proprietors, issuers may ask for Social Security numbers before approving a business credit card application. That means issuers may use personal credit to evaluate business creditworthiness. So until your business can establish its own credit history, it’s important to consider how opening a business credit card can affect you personally.

Potentially, applying for or opening a business credit card may result in the following:

For smaller or new business owners, applying for a business card will generally result in a hard inquiry, which is a record of the credit check on your credit report. Hard inquiries can remain on a credit report for roughly two years and are factored into your credit score.

Business credit cards often require a personal guarantee because there’s no business collateral for the issuer to go after if the credit card account defaults. Another factor business credit lines consider is risk, since the credit lines on business accounts are typically higher than personal credit lines.

However, a personal guarantee blurs the lines between business and personal debts. If you run into trouble with your business credit card and have provided a personal guarantee, there’s a higher chance delinquencies may be reported on your consumer credit report, which may negatively impact your credit score.

Business credit cards generally have higher limits, so carrying higher balances makes it hard to maintain a credit utilization ratio under 30%, as experts recommend, especially when combined with your personal credit utilization ratio. Consequently, business credit card activity reported to both consumer and business credit bureaus may impact your credit utilization ratio and potentially your personal credit score as well.

Even if your business credit card issuer doesn’t report business activity to the three major consumer credit bureaus, they may report on an account if you miss payments.

A delinquent business account can remain on your personal credit report for up to seven years. This is worth noting because your payment history is an important factor when lenders evaluate your creditworthiness.

Depending on the credit card issuer, business credit cards may appear on your consumer credit reports. However, many credit card issuers don’t report as long as the business card is in good standing and you make on-time payments. Some card issuers will only report negative information, which can potentially hurt your credit.

Suppose your card reports to both consumer and commercial credit bureaus. In that case, your business activity will appear on both credit reports, and it may impact credit scoring factors like:

• Credit history
• Credit utilization ratio
• Payment history

Good credit habits, such as on-time payments and a low credit utilization ratio, can help your personal and business credit. However, if you miss payments or have a high credit utilization ratio, it may hurt both.

Typically, credit card issuers evaluate personal creditworthiness before approving new businesses for a business credit card. And card issuers usually require personal and business data and a personal credit check.

Don’t forget that if you are approved for a business card, it will probably require a personal guarantee, leaving you personally liable for any business debts.

Similar to how a business credit card can potentially hurt your credit, it can also help. By practicing responsible credit behavior (like making on-time payments and keeping a low credit utilization ratio) with a business account, as you would use with a consumer account, you can build your company’s credit file and history while maintaining your personal credit without worry.

Building your business’s credit profile doesn’t necessarily have to affect your personal credit. Practicing responsible credit use, as you would with a consumer card, can help your business access the credit and funds it needs without affecting your personal credit.

Additionally, understanding the terms of the agreement is important before deciding which business credit card is right for you—for example, determining which card issuers report to consumer credit bureaus, when and why.

If you’re ready to take the next step, compare business credit cards from Capital One and explore your options today.