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

by on October 6, 2013 · 9 comments

in Credit FAQ, Sunday Reader Questions, Video Blog Post

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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.

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

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  • Steven

    This might be considered a dumb question but I actually don’t know the answer. Are you aloud to get a business credit card even if you are not the owner of the business?

  • Steven

    This might sound like a dumb question but I actually don’t know the answer. Are you allowed to get a business credit card even if you are not the owner of the business?

  • Steven

    Sorry I didn’t mean to post it twice.

  • silver springer

    I own a sole proprietorship and keep getting messages from Dun and Bradstreet that my vendors are not recording my payments. I contacted Chase Ink, as my vendors are my business credit cards, and got a letter from them saying they don’t report to business credit entities like paydex. Anyone else find a way to get around this and have prompt payments on business cards recorded in paydex?

  • Elenor

    I’ve struggled with the idea (always requested by my D&B salesman when he calls {eye roll}) of ‘putting in my vendors’ so my payment history shows in my D&B record. That involves having D&B actually *contact* my vendors to confirm my history with them — and I don’t particularly want to bother them with that. (They already know my great payment history with them.) I’m not looking for funding or new vendors (and if I need to buy from a new vendor — I use my Ink Bold!). (I own a small manufacturing company that’s 50 years old.)

  • Mr. Cool

    “leverage” HAS to be brian’s favorite word (:

  • JR

    I heard next trip you will be going on is to Mumbai and the Maldives. That sounds amazing!

  • Robert

    if you follow the link to Experian, be warned that the $129 annual business credit monitoring may not be such a great deal. I have 3 business CC’s so I expected to see information about those accounts. for $129 all they have is my business name and address and the credit ranking says “Score undetermined. Insufficient Data To Score.” Not quite worth $129 in my opinion.

  • John

    So I opened a business CC 10 years ago in anticipation of a new business I was starting that ultimately fell through. (Yes I know, I counted my chickens before they hatched.) The card got buried and was recently found. The limit isn’t very high, only $1000, but the length of time the account has been open (and in good standing; no charges = never a late payment) make me hesitant to close the account.

    Should I just sit on it? Request a credit line increase? (If that would somehow benefit my personal credit). Just cancel it and not worry about the length of time because $1000 isn’t enough reduction in total credit to make a difference?

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