Many people don’t think twice about applying for a new business card, believing that what they do on their business credit card won’t be reflected on their personal credit report. However, this belief is far from reality.
Image via Flickr by Håkan Dahlström
Your business credit card and your credit reports are deeply connected. A business credit card doesn’t affect your personal credit in the same way that a personal card will, but it does have some impact.
Every time you apply for a new business or personal credit card, a hard inquiry will show up on your credit reports. This could temporarily lower your credit score. When you pay your business accounts on time and don’t max out your credit limit, both your business and personal scores might improve. If you miss payments, you could hurt your personal credit score for up to 10 years.
Even if you pay off your accounts every month, carrying a high credit balance is risky. This is especially true if you are planning to borrow money or to apply for a mortgage soon. Your credit utilization ratio should never be too high. Specifically, your credit charges shouldn’t exceed 30-50% of your specified credit limit. You can prevent or resolve this issue by asking your bank for a credit line increase. Another option is to make payments at least twice a month.
If there’s a chance that you’ll be unable to pay off your accounts every month, there are some precautions that you should take.
Something you can do is choose a bank that won’t report the activity to the consumer credit bureaus. Bank of America, Citi, and Wells Fargo only report the monthly payments to commercial credit bureaus, while BBVA doesn’t report the business credit cards’ activity at all. Chase and US Bank report the activity to the commercial credit bureaus only if the account is seriously delinquent.
However, most banks require personal guarantees to open a business credit card. You will still be personally liable for any debts, and your credit score may be affected.
So what can you do to keep your credit score in good standing? Consider opening a high-risk merchant account, so you don’t accidentally max out your credit card. High-risk merchant accounts are more costly, but they have their perks that outweigh the higher fees.
Some of the benefits include the ability to accept card-not-present transactions, process multiple currencies, and to sell to higher-risk countries. Another perk of a high-risk merchant account is the limited penalties for chargeback activity. Unlike a low-risk account, a high-risk merchant account is very rarely shut down due to excessive chargebacks.
It’s important to consider the possible consequences of using a business credit card; its activity can negatively affect your credit score. A high-risk merchant account, however, will keep your personal credit score safe.