Does Closing a Business Credit Card Affect My Credit Score?
Quick summary
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"Reader Questions" are answered twice a week by TPG Senior Points & Miles Contributor Ethan Steinberg.
Business credit cards can be an important tool in building up your points balances as they give you more welcome bonuses to consider and generally don't show up on your personal credit report. You might even be surprised to learn that some of your money-making activities make you eligible to apply for business cards. TPG reader Jeremy wants to know if closing an old business credit card will hurt his score ...
[pullquote source="TPG READER JEREMY"]I have an Ink business card for a business that I recently sold. I don't think it shows up on my credit report, will there be any impact to my personal score if I close the card?[/pullquote]
Jeremy is right to be thinking about the impact to his credit score before he closes any card. 15% of your credit score is determined by your length of credit history, and so closing a card can have an adverse impact on your personal credit score. However, business cards are a slightly different case.
Even if you don't need a business card to manage your expenses, there's a very compelling reason to consider getting one anyways. Most business cards do not report to personal credit bureaus, meaning the charges you make on these cards won't show up on your personal credit report and increase your credit utilization rate (which can also lower your score). The one notable exception to this is Capital One business cards, but you can check out this guide for a more detailed breakdown of business credit card reporting practices.
What this means is that in most cases, business credit card accounts have no impact on your personal credit score, and closing one will likely lead to zero damage. The card's age and the charges you make on it will have no impact on your credit score. You can double check this by logging into a site like Credit Karma and clicking on "age of credit history." It should show you a list of all the cards aging on your personal credit report. In my case, the half dozen or so business credit cards I currently own are not listed here. Closing one of these cards would in no way affect my credit score.
However, if Jeremy decides to eventually apply for a new business credit card using his Social Security number as a sole proprietor, that will impact his score (albeit temporarily). This application will result in a hard inquiry on his personal credit report and would likely cause a 3-5 point drop, but hard inquiries typically stay for only two years.
Finally, don't let the above information lull you into a false sense of security when it comes to business credit cards. Even though they don't appear on your personal credit report, you're still liable for the charges. If you run up a balance, default on the account and are sent to a collection agency, it has every right to come after your personal finances. Hopefully that won't ever be an issue for TPG readers who are familiar with our commandments of travel rewards credit cards and wouldn't think about messing up the potential for future welcome bonuses.
Bottom Line
Jeremy can go ahead and close his business card without worrying about the impact that action will have on his credit score. However, given Chase's 5/24 restrictions, there's a good chance that if he closes the account he'll have trouble reapplying for the same card in the future. One alternative he might want to consider would be downgrading the card to a no annual fee version, like the Ink Business Unlimited Credit Card instead of closing the account.
Thanks for the question, Jeremy, and if you're a TPG reader who'd like us to answer a question of your own, tweet us at @thepointsguy, message us on Facebook or email us at info@thepointsguy.com.