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Will a Business Credit Card Help Improve My Fair Credit Score?

Dec. 29, 2014
Business Credit Cards, Credit Cards
Will a Business Credit Card Help Improve My Fair Credit Score?
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If you have a fair credit score, one way to improve it is to use a business credit card. By making timely payments each month and keeping a low balance on the card, both your business credit score and your fair personal credit score can improve.

Why does a business credit card affect your personal credit score?

Although you may choose to use a business credit card for only business expenses, it will likely affect your personal credit score if the business is in your name, if the card issuer checked your personal credit during the application process, or if you signed a personal guarantee to get the card.

Using personal credit for a business loan or credit line is common if you run a small business or a start-up — as opposed to a much larger business that already has established credit to its name.

With a personal guarantee, you’ll be personally liable for the debts incurred on the business credit card, and your payment history will be reported to the three credit bureaus, Experian, Equifax and TransUnion. However, you can boost your personal credit score and your business credit score by being a responsible cardholder, making payments on time each month and keeping a low balance in relation to your available credit. Experian recommends keeping your balance at 20% to 30% of your credit limit.

If your business is new and you haven’t yet established credit in its name, it’s important to do the following: Incorporate or form a limited liability company to ensure your company is seen as a separate business entity; open business bank accounts in your legal business name; obtain a federal Employer Identification Number; and set up a business phone line in your business name, according to Experian.

By consistently paying all creditors on time, holding a reasonably low balance on the business credit card, and keeping all of your personal finances in good order, your business should quickly begin to build its own credit history.

It’s also wise to monitor both your personal and business credit reports regularly to ensure that information is accurate, and always pay all your creditors on time, since this plays a major role in the calculation of your business credit score.

If used the right way, a business credit card can help improve both your business and your personal credit score. That can lead to more attractive opportunities to grow your business.

Image via iStock.