Small business is one of the main drivers of the economy, with 47.3% of employees working for small businesses. As a small business owner, being able to manage your cash flow is a big deal — and credit cards can play a part in that.
However, it’s important to make sure you’re doing your best to keep your business and personal finances separate. In some cases, a business credit card can help with that. A business card can also make tax time a little easier, plus it can help you build a credit history in your business name.
But do business credit cards affect personal credit too? In some cases, your personal credit matters when you get a small business credit card — and in other cases, the two have less to do with each other.
Here’s what you need to know about business credit cards and your personal credit.
Most business cards require a personal guarantee
First, it’s important to note that many small business credit cards require a personal guarantee. When I applied for my own business credit card, I had to sign a statement recognizing that I would be personally liable to cover the balance in the event that my business fails. Basically, I’m saying my personal assets will be used to cover any business debt on the credit card.
For the most part, a personal guarantee is connected to small businesses like sole proprietorships, LLCs, and S-Corps. These types of businesses often don’t have the business credit report that would allow them to qualify for a business credit card without a personal guarantee. There are some cards, however, that don’t require a personal guarantee.
A corporate card is connected to your business and doesn’t require a personal guarantee. However, they can be hard to get, since they require your business to have established credit and be able to show that the business itself can provide the guarantee. This typically means you are talking about multi-million dollar businesses.
It’s possible to get a Brex business card without the need for personal credit or a personal guarantee. That said, depending on whether you opt for the Brex for Ecommerce or the Brex for Startups card, there will be some financial qualifications to meet. For example, you might need a certain amount of money in your bank account or a certain amount of monthly sales. You must also have an EIN to apply for a Brex card.
Additionally, the Brex cards are not credit cards, and each month Brex automatically takes money from your connected bank account to cover the expenses on your card.
Applying will result in a hard inquiry
If you’re applying for a small business credit card that requires a personal guarantee, you’ll likely end up with a hard inquiry on your personal credit report. Because your personal assets are on the line, your personal credit will be checked.
A hard inquiry can impact your credit score by a few points, bringing it down a little bit. A hard inquiry takes place with your permission and indicates that you’re actively seeking credit, as opposed to a soft inquiry, where it’s often a creditor seeing if you pre-qualify for a deal.
The good news, though, is that an inquiry generally has only a small effect on your score. For most people, according to credit score producer FICO, the impact is only about five points. But before applying for a business credit card, make sure you’re prepared for the impact the hard inquiry will have on your personal score.
A new card could impact your average age of accounts
One of the factors that goes into your credit score is how long you’ve had credit. This makes up about 15% of your FICO score. The age of your oldest account is considered, as well as the average age of your accounts.
When you apply for new credit, your new account lowers the average age of all your accounts. This can bring your score down a little bit — especially if you open several credit cards within a few months. Because a business card might be reported on your personal credit file, if you open a business card and a personal card in a short period of time, the impact could be greater.
Card issuers may report to the credit bureaus
It’s important to note that even though there are separate credit reporting agencies for businesses, some credit card issuers report business card information to the personal bureaus. This is one of the biggest ways business credit cards affect personal credit.
But whether or not this happens depends on the business card. Some credit issuers, like Capital One, where I have my business credit card, report all activity to your personal credit report. In situations like this, it could actually help your personal credit score if you make your payments on time and maintain a low credit utilization ratio (keep your balances low). On the other hand, missing payments can have a negative impact on your credit score.
Some credit card issuers will only make reports to your personal credit history when you have delinquent accounts. With these issuers, your good habits won’t improve your personal credit score, but negative events such as late payments could drag your score lower.
Finally, there are some small business credit card issuers that don’t report your business credit card activity to your personal credit file at all — even though there’s a personal guarantee. In these cases, your business credit card won’t affect your personal credit, but the issuer will still come after your personal assets if you become delinquent.
Here’s how some of the most popular small business credit card issuers report to personal credit reports:
|Card issuer||Activity reported|
|American Express||Only if your account isn’t in good standing|
|Chase||Only if your account is delinquent (60 days)|
|Discover||Reports all activity|
|Capital One||Reports all activity|
|Citi||Does not report business activity|
Business cards may help your credit utilization
When asking yourself do business credit cards affect personal credit, it’s important to consider credit utilization. Credit utilization is a measure of how much of your available credit you’re using and it makes up about 30% of your credit score. If you’re using most of your available credit line, then this will count against you. If you keep your balances low, then this helps your credit score.
If your business card has a high credit limit and you’re not a big spender, this could improve your credit utilization ratio and boost your credit score. However, this will only work with credit issuers who report all of the activity on your card to the consumer credit bureaus, not just delinquent activity.
Your personal credit might be protected from business problems
If you choose a card that doesn’t report to the consumer credit bureaus at all, your personal credit might be protected if something goes wrong with your business. In this scenario, if you’re experiencing a cash flow crunch and miss a payment, it won’t bring down your personal score.
As long as you bring your account current as quickly as possible, you might even be protected if the issuer reports negative information to the bureaus. For example, Chase waits until you’re 60 days delinquent to report to the consumer credit bureaus, so you have a little time to catch up before your personal score is impacted by a late payment.
Commonly asked questions
Can I get a business credit card with bad personal credit?
As with all things related to personal credit, it depends. However, many business card issuers prefer customers with good to excellent credit, even though there are some that will accept poor personal credit.
There are cards like the Capital One® Spark® Classic for Business that will accept average personal credit. And if you get a card like the ones offered through Brex, the size of your bank account will matter more than your personal credit.
Can an LLC get a credit card?
Yes, if have an LLC, you can get a business credit card. However, even if your card is under an LLC, you might still need to provide a personal guarantee and your personal credit might be checked.
How do you qualify for a business credit card?
Much like any other credit card application, a business card requires a credit check and you’ll be asked about your income. Each credit card issuer has its own requirements. If you have a business, you can qualify for a business credit card — as long as you meet the criteria set by the issuer.
Can I use my EIN instead of SSN to get a business credit card?
While you might be able to include your EIN on the credit card application, if your issuer is using your personal credit score to help make the decision, or if a personal guarantee is required, you might still need to provide your Social Security number (SSN).
For example, when I applied for a business credit card, I entered my EIN on the application, but I had to provide my SSN as well. Brex cards, on the other hand, don’t ask for your SSN at all, and rely solely on your EIN.
Depending on your circumstances, it can make sense to get a business credit card that impacts your personal credit. After all, if you make on-time payments and can improve your overall credit utilization with the help of a business card, it can be beneficial to have that extra reporting to a consumer credit bureau.
On the other hand, there are card issuers that won’t report to consumer credit bureaus, and if you’re concerned about what might happen with your business in the future, that can be an advantage down the road.
So, do business credit cards affect personal credit? Well, that depends on the card you get and how you use it. Before you decide which card to get, make sure you consider the needs of your business, the impact on your personal credit, and what is likely to provide you with the greatest benefit.