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Does my business credit card affect my personal credit score?

by OnDeck Australia,   Jul 02, 2021

A business credit card can be a handy tool for keeping your business up and running. However, if you run into trouble using your business credit card, it begs the question; will it affect your personal credit score?

What is a business credit card?

Like a personal credit card, a business credit card provides business owners with a credit limit they can borrow against each month. A business credit card allows you to easily build your credit profile, making it easier to borrow money in the future.

Business credit cards are a great way to access cash quickly if unexpected business expenses arise. Because repayments are only made if the credit limit is borrowed against, many small business owners will keep a business credit card as a backup to cover any shortfalls in their cash flow.

Business credit cards are available from various financial institutions, and the application process mimics that of a personal credit card. Since the application process is normally automated, business credit cards are easier to get a hold of than a standard business loan.

The debt is usually unsecured for business credit cards, which means that interest rates are typically higher than the average business finance loan. For businesses with low credit scores, secured credit cards are also available from some lenders.

Business credit cards can be highly versatile depending on what option you go with and your business’s needs. Some options have a rewards system that incentivises business spending, which includes paying your tax obligations.

What is a personal credit score?

A credit score is a numeric rating that indicates to lenders how reliable you are when managing debt. Someone who borrows often and has a questionable payment history will have a low credit score, while someone who can manage their debt well will have a high credit score.

Your personal score is influenced by an exhaustive list of factors that lenders consider relevant to your reliability when borrowing money. Anything that the credit bureau can construe as possibly affecting your ability to repay debt will be calculated in your credit report.

Having a poor score can make it difficult for you to borrow money, such as applying for a mortgage or car loan. With a poor score, you may only be able to borrow money with higher interest rates or by putting up collateral (the lender’s way of offsetting your risk).

A high score means you can access the most favourable finance options with the lowest interest rates. This is because a high score indicates you are a low-risk borrower who has a credible payment history behind them.

Is business credit separate from personal credit?

Personal and business credit is calculated separately by credit bureaus since they represent different credit histories. Your business credit report considers commercial indicators such as registered defaults, loan enquiries and any reports filed against your business. Your personal credit report considers personal indicators that reflect your ability to manage debt obligations. 

When you apply for any kind of finance, the lender reviews the relevant credit history of your account. If you have a limited business credit history, the financial institution will examine your personal credit report.

The potential credit score impacts from business credit cards

Your business credit card activity and business credit scores can certainly impact your personal score. This is because when you apply for a business credit card, you provide a personal guarantee for it. This means that you are personally liable for all business credit card activity rather than it being tied to a faceless corporate entity. If you sink your business credit score, it also means that you’re sinking your personal score along with it.

Other than your business card activity, the simple act of making inquiries about and applying for a business credit card can affect your personal credit. Business credit card issuers will perform a hard credit inquiry as part of your personal guarantee, and this can cause a drop in your personal score. 

Business credit cards affect your personal credit differently depending on how the issuer reports your business card activity to consumer credit agencies. Some issuers may report to consumer credit bureaus every month, while others will only make reports if you fail to pay back what you owe.

Why should I separate my personal credit from my business credit?

When starting a business for the first time, your personal credit and business credit will be necessarily linked since lenders only have your personal credit history to go off when assessing your finance applications. As soon as possible, you should seek to separate your business credit from your personal credit.

The main reason to keep personal and business credit separate is so that they don’t influence one another. For example, if you experience a hiccup in your personal finances and miss a mortgage payment, you don’t want that to be reflected in your business credit profile. If your business credit is tied to your personal credit and the business fails, or you get sued, your personal assets could be put at risk.

How to build business credit

It’s in your best interests to start building your business credit as soon as possible, and there are several ways of going about it. The first step is to open a dedicated bank account for your business and ensure that it has its own set of accounting books separate from your personal finances.

Business credit cards are a reliable way to start building business credit, as they allow you to demonstrate responsible debt management with relatively small amounts. Of course, when using business cards, you should make sure that you pay back the balance in full each month so that your credit score rises as quickly as possible.

You’re going to want to be able to check your credit score to see where you stand and if your efforts to improve it are working. Unfortunately, the simple act of checking your score can negatively impact it when going through a typical lender or bank. Luckily, you can use OnDeck’s Know Your Score tool to check your business score for free without leaving any footprint.

Learn more about credit scores.

Frequently Asked Questions

Does a business credit card show up on a personal credit report?

Account activity for business credit cards will only show up on a personal credit report if credit card issuers report it to consumer credit bureaus. Whether or not business credit cards affect personal credit depends on your business card activity and the issuer you go with.

Do business credit cards pull personal credit?

When you initially apply for a business credit card, there will typically be a personal credit check. This can cause an initial dip in your personal credit score, but this does not mean that the issuer will report business account activity to consumer credit bureaus.

Does a business line of credit affect personal credit score?

A business line of credit functions similarly to a credit card and carries the same risks regarding your personal credit. Maintaining a good track record and keeping your credit utilisation rate low will ensure your personal score is not negatively impacted.

Does a business account affect personal credit?

A business account can affect personal credit, depending on the circumstances. For example, applying for business finance too early and getting rejected will most likely be reflected in personal credit reports.

Prepared by OnDeck Capital Australia Pty Ltd ABN 28 603 753 215 (“OnDeck”) for general information purposes only. Content may belong to or have originated from third parties and OnDeck takes no responsibility for the accuracy, validity, reliability or completeness of any information. Information current as at July 2021. You should not rely upon the material or information as a basis for making any business, financial or any other decisions. Loans issued in Australia are subject to the terms of a loan agreement issued by OnDeck. Loans are subject to lender approval. OnDeck® is a Registered Trademark. All rights reserved.

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