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Our first question this weekend comes from TPG reader Kevin who wants to know what the downside of using a business credit card for the majority of his spending would be:
“What would be the negative consequences of having all my spending on business credit cards be? I guess this shows my lack of understanding of personal vs. business credit histories.”
I’m sure many readers are wondering the same thing since I know a ton of people recently got in on the 60,000-point offer this week (which lasts until tomorrow!) for the Ink Bold/Ink Plus from Chase, and the recent limited-time 75,000-point sign-up bonus offer for the Business Gold Rewards card from American Express that was available last month – and now are wondering how to meet the minimum spending requirements on those cards in order to earn the bonus.
While it is a good idea to put most of your spending on business credit cards, there are some key differences between your personal and business credit lines that you should know about.
Business credit cards generally have fewer consumer protections and higher interest rates and fees. Since business credit cards are not monitored like personal credit cards, credit card companies can frequently change your APR and tack on additional fees and penalties. As long as you’re paying off your bill every month (which you should be doing regardless of the type of credit card you have), though, these fees and changes don’t really matter and won’t affect you. But if you don’t pay off your bill in full every month, you’ll get stuck with large fees that will negate the value of any miles and points that you’re earning.
The main benefit to putting your spend on a business credit card is that your business credit cards’s activity sits on your business credit report and any balances you have there don’t affect your personal credit score. Utilization of your credit is the number one factor in determining your FICO score at 35%, so if you’ve got tons of available credit on your personal credit line and you’re using 0% or a minimal amount, your score is going to shoot up.
If you pay your bills in full and on time, a lot of time the credit card companies will still report your balance even if you made the payment before it was due – it just depends on when a credit inquiry takes place. That is why having all your activity on business credit cards is smart because it will help keep your personal credit score in good standing since low or no balances will be reported.
You still have to be very careful of the different fees associated with business cards and make sure you pay off your balances in full each month, but there really are no negative consequences to only using a business credit card. As long as you’re smart about your spending and don’t go overboard just because it won’t affect your personal credit score you should be fine.
To learn more about the benefits of getting a business credit card, read this post.