Business Credit Cards Can Impact Personal Credit Scores

A business credit card can impact a business owner’s personal credit scores as a personal guarantee being made could require a hard inquiry, defaulting on payments could result in debts being reported to consumer credit bureaus, and if the card issuer reports credit limits to the personal bureaus as this will change your credit utilization ratio. Some card issuers will also report on-time payments which may help your personal credit score and so could an improved credit utilization ratio.   

Most lenders, lessors, and companies that use personal credit scores will be expecting to see business owners have some business accounts including business credit cards reported in, so don’t stress when you see your company impacting your personal credit score.   

This is especially true for startups, entrepreneurs and solopreneurs, and even newer LLCs where the business does not have enough history to make it creditworthy, so personal guarantees are required for the account to be approved. For larger corporations and enterprise organizations, business credit cards likely won’t impact the business owner’s personal credit score as the company will have enough financial history and information to be approved on their own. 

If you’re curious about how your score may be impacted from application to card closure, here’s a bit more information on each. 

• Hard inquiries during the application 

• Personal guarantees 

• Payments being reported 

• Credit utilization ratio 

• Account age 

• Authorized users 

Hard inquiries during the application process 

If your company cannot get approved without a personal guarantee (different from collateral), the credit card issuer may run what is called a hard inquiry or a hard pull with the three personal credit bureaus. Hard inquiries are a signal that the person is opening a new line of credit and they have a temporary negative impact on personal credit scores and may affect business credit scores. This is only a short-term negative impact and is nothing to worry about.   

Personal guarantees 

A personal guarantee is a legal agreement where a business owner — or multiple owners — accepts personal responsibility for repaying a business debt if the company defaults. This means personal assets like savings accounts or a primary residence could be at risk. Lenders often require personal guarantees for small business credit cards and loans because small businesses may lack the credit history or financial track record needed to qualify on their own. 

When the initial application for the business credit card is done, some issuers run a hard inquiry. If payments aren’t made on-time or there is a large delinquency on the balance, most business credit card providers will report the delinquent payments to the consumer credit bureaus for any owner that made a personal guarantee. This results in a longer term negative impact on their personal credit scores. 

A few business credit card issuers may also report on time payments to the personal credit bureaus and this should have a positive impact on the scores of the people that made the personal guarantees. So it is important to make sure your company is paying on time every time if you want to keep your score intact and grow it. 

Payments being reported 

Some business credit card issuers have been known to report both on time and delinquent payments to the personal credit bureaus, while others may only report missed payments and delinquencies. Because they can make changes whenever, it is important to ask the issuers you’re interested in before you apply for a business credit card if the impact to your personal credit score is a deciding factor for you. 

Credit utilization ratio 

Your credit utilization ratio or CUR is a measure of how much revolving credit you use compared to the total amount available. The higher the percentage, the higher your risk as a borrower and this could have a negative impact on your business and personal credit score. 

The revolving credit amount from the business credit card will likely be reported to the business credit bureaus, but the issuer may not report it to the personal credit bureaus unless your business misses payments or the issuer routinely reports to personal bureaus. This means your business credit score will likely be impacted but your personal credit score will not be since it is not being reported in.   

If the credit amount is reported to your personal credit account and the company does not keep a large balance, the increased amount of revolving credit available could help your personal credit score as your personal CUR ratio will drop. 

The age of the account 

The longer a credit account is being reported to a credit bureau, the more trust it can build if it shows consistent on-time payments. This results in a boost to your personal credit score if the business credit card is an established account.   

Authorized users 

When there are authorized users on a business credit card and they run the balance up, if you cannot make the payments on-time and they’re reported to the consumer credit bureaus, your personal credit score may be impacted negatively. This is why it is important for you as a business owner to track how much spending is being done and to make sure the authorized users are team members that can be trusted to be fiscally responsible. 

Pro-tip: Have company policies in place about spending including needing authorizations for purchases above a certain amount and what is and is not able to be purchased with the corporate credit card. 

Business credit cards can impact the business owner or owners personal credit scores when the amount of revolving credit, payments (missed and made on time), and hard inquiries are made to the consumer credit bureaus. As long as your company does not carry a large balance and makes payments on time, your personal credit score will likely be negatively impacted and you may see a boost to your personal credit score number. 

SmallBusinessLoans does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisors.