If you’re a small business owner, then you likely prefer to keep your company’s financials separate from your personal ones. Because of this, it may be an unpleasant surprise when you spot the account history from your business credit card on your personal credit report. If your company goes through a rough financial patch, your personal credit history could be affected.
Can You Stop the Overlap Between Your Business and Personal Financial Data?
It’s next to impossible to prevent the overlap between your business and personal expenses entirely because the financial world won’t let you eliminate your personal liability for a business credit card. The reason for this is that company credit cards require a personal guarantee. However, there are steps that you can take to limit your risks. For instance, sign up for a business card that doesn’t report to the consumer credit bureaus. Some business credit card issuers report solely to commercial credit bureaus while others continue to report to personal ones, but they don’t do it on a monthly basis.
A few business credit card companies only report delinquencies when payments become seriously delayed. So, if you keep the account current, then you can prevent the credit report overlap from negatively affecting your score. Keep in mind that even when a business credit card is reported against a person’s credit history, it is just the primary cardholder’s credit that is impacted.
How Card Issuers Assess Business Credit Reports
Once you start a company, it will have the same type of credit report as your personal credit history does. Also, when you apply for a business credit card, your company’s business report will likely be assessed during the card approval process. If your company is new and doesn’t have a business report, then a card issuer may give its approval based on your personal credit report.
When Business and Personal Finances Collide
If the activity from your business credit card shows up on your personal credit reports, other financial institutions and lenders will take it into account the same way they would any other credit card debt. The business credit card account data will impact your credit history length, general utilization and payment history. This can be a good or a bad thing. If your business account stays current, maintains a low balance and remains under the limit, then it may improve your personal credit score. If the opposite happens, then it will have a negative impact.
In most cases, credit bureaus consider the application for a new business credit card a hard inquiry, so this action is likely to ding your credit score temporarily. CreditCards.com reports that you can set up your business card in a way that lets you share responsibility for it with your company. This type of setup could decrease the account’s impact on your personal credit history.
What to Consider When Selecting a Credit Card
If your path to becoming a successful entrepreneur seems a bit precarious, then consider applying for a card that doesn’t send reports to consumer credit bureaus to protect your personal credit history. However, when it comes to applying for credit cards, it’s really better to apply for one that comes with rewards and benefits that will help you instead of getting a credit card based on the financial institution’s reporting policies.
You will continue to be personally liable for defaults that occur on a business credit card that doesn’t report account activity to a consumer credit bureau. This requirement is included in the personal guarantee that business owners make when they sign for a credit card account, so where and how the credit card issuer reports won’t make much of a difference. The reason for this is that if the card issuer sues for a delinquent balance or sends the business card account to its collections division, then this action will most likely wind up on your personal credit report regardless of how the payment information is handled.
Protecting Your Personal Assets
Before making the decision to apply for and use a business credit card, be sure to consider how it will impact your personal credit history. Keep in mind that despite the type of account that you use, you will still be liable for it. To protect your personal assets, borrow moderately and make your payments on time.