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How a business credit card could help your personal credit scores

Oct. 13, 2019
5 min read
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The right business credit card offers a lot of benefits to a small-business owner. Not only does a business credit card help you earn valuable points and miles, but it also may help you establish a better commercial credit rating for your company.

But will a business credit card help build your personal credit scores? Unfortunately, there is no simple answer to that question. Although your account management is the most important factor in getting or keeping a good credit score, there are a few ways that a business credit card might help improve your personal credit scores.

A business credit card might help you establish personal credit

Credit cards, business or personal, help you establish or boost your credit rating. Most personal credit cards report account activity each month to the three major consumer credit reporting agencies — Equifax, TransUnion and Experian.

Business credit cards work a little differently. Most issuers report your account information each month to one or more of the business credit bureaus. These card issuers give you the opportunity to build positive commercial credit when you open an account. Though not necessarily the norm, some issuers of business credit cards also report your account activity to the consumer credit bureaus each month. When you're smart about the way you manage these accounts, business credit cards potentially help you build business and personal credit at the same time.

Want to know which card issuers report to the consumer credit bureaus, the business credit bureaus, or both? Ask the card issuer about its credit reporting policy or check this guide for help.

A business credit card might lower personal credit utilization

Here's where the magic happens, from a personal credit score perspective. By using a business credit card that doesn't show up on your consumer credit reports, you might lower your personal credit utilization ratio. This sometimes make a big difference where personal credit scores are concerned.

Some small-business owners use personal credit cards for business expenses, especially when they're starting out. That choice may have negative consequences for the business owner's personal credit scores. In other words, it might damage them.

The credit utilization ratio on your revolving credit card accounts influences your personal credit scores. In fact, 30% of your FICO score is based on credit utilization. The higher your credit utilization climbs on your personal credit reports, the worse the impact generally is on your credit score.

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For reference, credit utilization refers to the percentage of your credit limit that's being used on a credit card (or on all of your credit cards combined). If you have a credit card with a $5,000 limit and a $2,500 balance, the account is 50% utilized. Lower utilization is better.

Now, let's assume that you open a business credit card that does not report to the consumer credit bureaus. The account would not show up on your personal credit reports (assuming you stay current with your payments).

When you use this business credit card, it won't increase the credit utilization ratio on your personal credit reports. As a result, your personal credit scores won't be damaged from high usage rates if you decide to tap a large percentage of the business credit limit on your account. You might still be charging the same amount of money each month for your business, but you'd no longer risk hurting your personal credit as a result.

A business card might give you better rewards-earning capability, depending upon the bonus category where you spend the most money. The Chase Ink Business Preferred Credit Card, for example, gives 3x points on your first $150,000 each year, in combined purchases in categories like travel, shipping, internet, cable and phone services or advertising purchases with social media or search engines.

Account management tips

If you want a credit card to help you improve your credit rating, either on the personal side or with the business credit bureaus, you'll need to manage the account carefully.

Below are three smart tips for managing your credit card:

  1. Pay on time. More than one third of your personal FICO score (35% to be exact) is based on the payment history of the accounts that show up on your personal credit report. Payment history also matters with business credit scores, such as the Dun & Bradstreet PAYDEX business credit report. Always make your business credit card payments on time to earn (or keep) a good credit rating.
  2. Keep your credit utilization low. Your credit utilization rate is almost as important as paying your bills on time when it comes to personal credit scores. Some (though not all) business credit scoring models are designed to consider credit utilization. Ideally, you should pay your full statement balance every month to avoid interest fees. If you want to make sure a low utilization rate appears on your credit reports in an upcoming month, pay off your balance prior to your credit card's statement closing date.
  3. Be patient. Length of credit history is worth 15% of your consumer FICO score and may have an impact on your business credit scores as well.

The most important factor when it comes to credit scores will always be how you manage your accounts. Ultimately, your credit cards are simply tools. You decide how to use them.

Featured image by Getty Images/Hero Images
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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