If you’re trying to keep your small business completely separate from your personal finances, it might make your stomach sink to see your business credit card show up on your personal credit report. What if your business goes through a rough patch, and your personal credit score takes a beating?
It’s almost impossible to eliminate all your personal liability with a business credit card, since almost all of them require personal guarantees. But if you’re a small-business owner, you may be able to limit your risk by using a card that doesn’t report account activity to consumer credit bureaus. Some business credit cards report only to commercial credit bureaus, not consumer credit bureaus. Others don’t report monthly payments at all.
NerdWallet reached out to representatives from nine major credit card issuers and asked how they report business credit card activity. Here’s what we found out:
|Does the issuer report small-business credit card activity to consumer credit bureaus?||Does the issuer report small-business credit card activity to commercial credit bureaus?|
|American Express||Yes, but only negative information||Yes|
|Bank of America||No||Yes|
|Chase||No, unless the account is seriously delinquent||Yes|
|U.S. Bank||No, unless the account is seriously delinquent||Yes|
It’s important to note that even when business card activity is reported to consumer credit bureaus, it affects only the credit of the primary cardholder — the small-business owner who provided the personal guarantee. Employees who carry company-issued credit cards generally won’t see the activity appear on their personal credit reports.
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Line between business and personal can blur
When business credit card activity shows up on your credit reports, it’s treated the same as any other credit card debt by both the FICO and VantageScore credit scoring methods. Data from that account will affect your length of credit history, credit utilization and payment history, among other factors.
Assuming you have a card that reports to both commercial and consumer credit bureaus, what should you expect?
- If you pay on time and stay well under your limit: The account may improve both your personal and business credit scores. This could make it easier to qualify for loans on good terms and negotiate government contracts.
- If you miss a payment or use too much available credit: The account could hurt both your personal and business credit scores. Even if you close your card, its history could stay on your personal credit reports for up to 10 years.
When you apply for a new business credit card, it typically shows up on your credit reports as a hard inquiry, regardless of how it reports afterward. This could temporarily ding your credit, but it doesn’t necessarily indicate the issuer will report the card’s activity to consumer credit bureaus.
» MORE: Business credit score 101
Should I get a business credit card that doesn’t affect my personal credit?
If you can imagine making a few slip-ups with business credit, you might want to get a card that doesn’t report to consumer credit bureaus as a precaution. But generally, it’s a better idea to apply for the card that offers the rewards and benefits you’re most interested in, instead of focusing on the card’s reporting policy.
If you default, having a business credit card that doesn’t report regularly to consumer credit bureaus won’t make a difference. You’ll still be personally liable for the debt on the card if you signed a personal guarantee, which is included in almost all small-business credit card agreements. If the issuer sues you for the balance or sends the account to collections, it will probably turn up on your personal credit report, regardless of how other payment information is reported.
The bottom line
It’s important to be mindful of how your business credit card affects your personal credit. But don’t make the mistake of thinking you can get rid of all your personal liability by choosing a business credit card that doesn’t report to consumer credit bureaus. If you want to protect your personal assets, your best bet is to borrow sparingly and pay your bill on time, every time.
Updated April 17, 2017.