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Acumen Connections » Blog » Do Business Credit Cards Affect Personal Credit?

Do Business Credit Cards Affect Personal Credit?

Person holding credit card. Article title is “Do business credit cards affect personal credit?” Gray background with blue, red, green, and yellow lines. Acumen Connections payment processing logo on top of image.

Mastering the balance: Business credit’s role in personal finance

The way business credit is managed has a significant impact on personal credit scores. It can affect everything from loan eligibility to fiscal stability. In this article we delve into the ways business credit cards may affect personal credit. We also offer strategies to navigate the complex relationship between personal credit and business credit.

In the world of finance, the relationship between business credit cards and personal financial may be closer than you think. Their relationship holds high importance.

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Blurry Financial Lines

Small business experts recommend keeping your business and personal life separate for several reasons. These include:

  • Allows you to easily track your business’ finances and cash flow.
  • Ensures you’re able to take advantage of tax deductions fully.
  • Protects your personal assets from legal liability against your company.
  • Establishes business credit separate from your own.
  • Provides access to financial services that are only available to businesses.

It’s not recommended to merge personal and business finances. Of course, it can sometimes be tempting or convenient. But unfortunately, it can have unintended repercussions on personal credit scores.

Co-mingling of business and personal finances often leads to complications. Afterall, the intertwining of these accounts can result in negative impacts on a person’s credit score and financial stability. For example: business financial issues can directly affect personal creditworthiness when there’s no separation. This is why it’s crucial to keep personal and business finances separate.

It might not always be possible to keep a firm line of separation between your business finances and personal finances. This is especially the case with a business credit card. Here’s what you need to know to avoid having business credit cards impact your personal credit.

How do business credit cards affect personal credit?

There are a few ways that a business credit card could affect your personal credit score.

A list of ways a business card could affect personal credit. Icons show that credit inquiry, credit utilization, and payments & delinquencies could all affect personal credit. Gray background with blue, red, green, and yellow lines. Acumen Connections payment processing logo on top of image.

Let’s take a closer look at these elements to see how a business credit card could affect personal credit.

1. Credit Inquiry

Credit inquiries are a standard part of business credit card applications. Many card issuers are interested in knowing the business’s financial record as well as your own personal credit. In many cases a hard credit check could be run. Therefore, it’s important to plan these applications strategically and understand how each inquiry could affect your personal credit rating. This will help you avoid any potential negative implications.

a business line of credit,

2. Credit utilization

Some business credit card issuers may report your card usage to credit bureaus (TransUnion, Equifax, and Experian). This includes your credit utilization ratio. A low ratio is good and could help. However, racking up a lot of debt with your business credit card could cause issues. High credit usage on your business credit card could impact your personal credit.

Towers showing the three consumer credit bureaus are: TransUnion, Equifax, and Experian. Gray background with blue, red, green, and yellow lines. Acumen Connections payment processing logo on bottom of image.

To be safe, try to pay off your credit card in full every month. If necessary, aim to keep your credit utilization at or below 30%. Planning to make a large investment for your business? It might be worth it to forgo the credit card. Instead, consider a business loan, or a business line of credit. It will be less likely to impact your credit score. Plus, the interest rate may be lower than a credit card.

3. Payments and delinquencies

Most business credit card issuers won’t report a simple late payment to the consumer credit bureaus. However, if you stop payments entirely on your business credit card, it might be a different situation. How long is “entirely”? Typically, it’s about 30 days. If you haven’t made a payment within 30 days past the due date, it will likely be reported to the bureaus. That could really hurt your personal credit for up to seven years!

Personal liability and business debts

Establishing a business credit card is a smart move for several reasons.

: Person holding a business credit card. Image shows a checklist of the benefits of having a business credit card. They allow the user to buy expensive business purchases without using their own personal money. Business credit cards provide flexible financial stability for the business. A business credit card can strengthen the business’ credit for the future. Last but not least, a business credit card can separate business and personal finances. Gray background with blue, red, green, and yellow lines. Acumen Connections payment processing logo on the bottom of image.

Business credit cards typically help create a clear separation between your personal and business finances.

It also allows you to buy items for your business without having to put it on your own personal credit card. Many business purchases may be more expensive than the average consumer purchase! Having a different card to put the business expense on is a big help.

A business credit card is beneficial for your company’s financial stability. It provides you with the flexibility to manage cash flow, cover unexpected expenses, and invest in growth opportunities.

It’s essential for your business to build its own credit as well. Businesses often get access to special kinds of business-only loans. Having a business with a strong credit history is helpful for accessing great loans or lines of credit, down the road.

Other crossovers to be aware of

Worried about business credit impacting your personal credit or finances? Here’s a few other nuances you should be aware of.

Personal guarantees

If you sign as a personal guarantee, having your personal credit score impacted by a business credit card may be the least of your worries. In some instances, credit card issuers may require a personal guarantee when applying.Personal guarantees bear personal liability for business debts. In situations like this, personal assets could be in jeopardy. It is imperative to grasp the full extent of personal guarantees to safeguard your personal finances.

Comingling business and personal finances

If you mix personal finances and business finances, it could be hard for a court to distinguish between the two. Failure to create a clear distinction could lead to piercing the corporate veil, a term which here means the owner could be at risk of losing their own personal assets to cover business debts or liabilities.

Failure to maintain your business structure

It’s essential to maintain your business structure. Ensure it’s easily known, too. When creating business cards, your website, or anything else that the customer sees, make sure to display the name of your corporation or LLC.

Best practice for business cards is to clearly show the business name. Here is an example image of a business card for a fictitious company “Doe Plumbing”. Here, the business card clearly shows that the company is an LLC. Including the full company name on a business card can help show separation between the individual and the company.

Accounts payable and receivable should go through your business’ bank account. Contracts should be between your company and another party. Never have business contracts written between you and another party.

Understanding the various elements of business that could impact your own finances is important. It helps in making informed decisions about undertaking business obligations. This in-turn mitigates risk to personal finances. Knowledge and proactive management of these liabilities are key. They’ll help you maintain a secure and resilient personal financial foundation, even in the face of business debts.

Managing business debt wisely

Efficient management of business debt plays a pivotal role in positively impacting personal credit scores. Lowering business debt enhances the overall financial risk profile, which in turn favorably affects personal credit evaluations. On the other hand, poor management of business debt could hurt your personal credit. This dynamic demonstrates the vital role of robust business financial health in bolstering personal credit.

Maintaining a solid business financial footing ensures a more favorable perception by personal credit analysts. Furthermore, such disciplined financial practices in the business context serve as a testament to one’s overall financial acumen, which is increasingly valued by personal credit evaluators. It underscores the interconnectedness of business acumen and personal financial reputation.

A strong business financial standing doesn’t only benefit the business. It also serves as a cornerstone for personal credit resilience and growth.

Managing payments wisely

Do you run a business that needs efficient credit card processing? Contact Acumen Connections today. We’re a leading merchant processing provider. From streamlining payments with technologies like the popular Ingenico Desk 3500, to online checkout options, and other POS systems for small businesses, contact us to get set up today.

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