For many people starting a small business or for professionals already in the industry (regardless of size), it is important to assess the impact of the corporate card on personal credit. Interestingly, little attention is often paid to the effects of using a business card on personal credit. However, they exist, and they can be important.
Let’s take a look at the impact that business card use can have on personal credit. The implications and how to improve the use of business cards.
How a Business Credit Card Affects Your Personal Credit
There is no single way in which a business credit card affects your personal credit. In fact, we could distinguish as many as three major groups of effects. Let’s review them one at a time.
How does the continued use of credit affect you?
Although you may not know it, most business credit card issuers will report all of your account activity to the credit bureaus. That means that your card activity is subject to audit by the major consumer credit bureaus (TransUnion, Equifax, and Experian).
This way, they will also access your credit utilization rate. The credit utilization ratio is the balance divided by the total credit limits on your card. So when you accumulate a high balance on a business credit card, it’s more than likely that your personal credit will be negatively impacted.
To combat this situation, keep your credit usage in an acceptable range. The good average ratio would be at most 30% credit utilization on all your cards. For business credit cards, this is especially important. It may also be easier since you will generally have a higher credit level.
Of course, it is more advisable to use a consumer loan than a business credit card to finance a purchase or any business investment.
How does business card delinquency affect my business card?
Late payments on your business credit card will almost always be passed directly to the credit bureaus. That is especially true in the case of delinquencies of more than 30 days. You enter the delinquency phase when you are more than 30 days late. The delinquency phase causes very serious damage to personal credit.
Make no mistake about this aspect of business credit cards. When the business credit card is personal and in your name, even if it is business, it will have a negative effect on your credit balance.
In the case of delinquency, it will generate an inclusion in the records as a debtor. Obviously, this is devastating for your personal credit. In addition, it will also develop a serious problem in terms of costs since it can generate penalties with interests that, in some cases, are higher than 30%.
Inquiries to credit bureaus and credit impact
When business credit cards are used, it is relatively common for issuers to make inquiries to credit bureaus. On the other hand, certain transactions, such as credit extensions, may also involve such questions.
It should be kept in mind that such an inquiry may result in a check on your personal credit. At this point, you should remember that this type of verification influences the credit score.
On the other hand, in some cases, business cards require a personal guarantee at the time of application. Again, a credit check would be required. In addition, if the company does not cover the costs of non-payment, the user has to bear the costs themself. That, of course, would cause considerable damage to the credit rating.
Can you reduce the impact on your credit?
The best way to reduce the impact on personal credit when using business credit cards is to use these cards rationally. That has to do with staying within credit percentages of 30% of the limits and not leaving deferred payments over the established periods.
Also, on the other hand, great care should be taken in additional operations such as extending credit or requesting deferrals.
Finally, it should not be forgotten that this type of corporate card can be directly related to the cardholder’s finances. That means that, in many cases, the cardholder will be responsible for using the corporate card. Annually, in the United States, multiple claims are related to improper or inappropriate use of business credit cards.