Will Applying For A Business Credit Card Affect The Credit Of The Business?

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TPG reader Eric is wondering whether his business credit score is affected by applying for or canceling a business credit card:

“When I apply for (or cancel) a business credit card, does it affect the credit of the business (the EIN of the business)? Or do they just pull my personal credit to see if I’m a good risk and then not keep track of the business’s credit?”

According to Experian, business credit report shows the same types of information as a personal credit report, but it is specific to a business’s debt repayment and public records, such as bankruptcies or tax liens. Here are the factors involved:

  • Credit: Number of trade experiences, balances outstanding, payment habits, credit utilization and trends over time
  • Public Records: Recency, frequency and dollar amounts associated with liens, judgments or bankruptcies
  • Demographic Information: Years on file, Standard Industrial Classification (SIC) code and business size

The credit bureaus gather data on trade credit transactions and produce business credit reports for the benefit of credit issuers. Credit is measured on a scale of 0-100, with a score of 75 or more being the ideal range.

Where it gets a little mixed up is that, for small businesses, business credit scores are often used in combination with a personal credit report for a small-business owner when determining whether you can open a credit card for your small business.

All small business credit cards such as the Ink Plus or Ink Bold from Chase, or the Business Gold Rewards Card from American Express OPEN are guaranteed by you personally, so when you apply for one of these cards, the issuer does an inquiry on your personal credit (so there is a little ding of 2-5 points typically) and uses that to determine whether or not to let you open the new card.

Ink Plus
Small Business Cards such as the Ink Plus are guaranteed by you personally.

Business credit scores are generally for larger businesses that want to get big insurance policies or take out large lines of credit, but if you just have a small business, your line of credit will generally be guaranteed by your personal credit score, so it is important to keep it healthy when applying for business credit cards as well. That’s not to say that your business credit score doesn’t matter. It does – if you make late payments, carry huge balances or close all your business credit cards at once, your business score will drop just like your personal one would and issuers will look at that.

But before you go canceling your card, remember that keeping a business credit card open can be a good idea for that reason since credit history and your credit utilization (debt to credit ratio) will impact your business credit score and having a card open and in good standing will boost your score while closing a business credit card might cause your score to dip.

Also note that since business cards sit on your business credit report and not your personal one, when you cancel one it should not negatively affect your personal score or the amount of available credit you have to you personally. Amount of available credit accounts for 30% of how your credit score is calculated, but since you won’t be losing any of the credit lines that sit on your personal credit report, it won’t affect your personal credit score, and that also means that you should be able to apply for future business credit cards as well without being impacted significantly.

Hopefully that answers your question, but tweet me @thepointsguy with any others.

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Intro APR Regular APR Annual Fee Balance Transfer Credit Rating
N/A 15.49%-19.49% Variable $95 See Terms Excellent Credit