Whether starting a small business, doing a freelance job, or even working on the side, you’ve likely wondered if it’s time to get a business credit card. Using business credit cards, you have an opportunity to earn rewards by covering the expense of doing business. Moreover, when it is high time to pay your taxes, it makes your life much easier when you put all your company buys n a business credit card. For this reason alone, splitting your business and personal costs is essential.
But separating your business and personal costs doesn’t signify that your business and personal credit won’t affect each other. For example, many people don’t admit that some credit card issuers note business credit card accounts to customer credit bureaus, meaning that how you use your business credit card can increase or decrease your credit rating.
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What does business credit mean?
Business credit history and credit rating are built when you open a business credit card. Like your personal rating, your business credit score goes up and down based on credit usage, payment history, the length of the loan, and other aspects determined by rating agencies. Business credit rating rates borrowers on a scale of 1 to 100, while personal credit scores range from 300 to 850. Business scores are publicly available, unlike individual credit scores.
Some small business lenders have begun using the FICO Small Business Scoring Service (SBSS) to specify the creditworthiness of a small business. This service issues business credit ratings ranging from 1 to 300, and lenders can use data to estimate your business credit history and your personal credit history. Thus it is better to support your business and unique stature in good standing.
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How does business credit affect personal credit?
Here you can see three modes by which applying for and utilizing a business credit card can impact your personal credit history:
1. Credit request when applying
The card issuer may regard your business track history and credit when applying for a business credit card. This may contain a rigorous credit check of your credit, which can decrease your credit rating by several points. In addition, many business credit card issuers demand you to sign a private assurance when you apply. Therefore you may be held privately responsible for paying off the debt if your company ruins on payments.
2. Your current credit usage
Some business credit card issuers report all activity on your account to the three central customer credit departments (Equifax, TransUnion, and Experian). This information includes your credit usage percentage —your credit divided by the total of all credit limits on your credit card. This means that if you run into a large balance on your business credit card, it could negatively influence your credit.
Many credit officers recommend maintaining your credit use on all your credit cards below 30%. This can be easier with corporate credit cards because they may have higher credit limits than customer credit cards.
But if you have to complete a significant investment in your business, getting a business loan might be more reasonable than setting it on a card.
3. Reporting an offence
Your monthly account activity may be not reported to the three major customer credit bureaus. But it may be informed about your account if you cease completing payments. If you are more than 30 days past due late payments are usually noted. If you reach this case, a negative score can damage your credit and stay on your records for up to seven years.
How not to damage using a business credit card
If you’re worried about the potential impact of a business credit card on your credit, there are things you can do to make it pleasant, not bad:
1. It is better to pay on time every time
Payment history is an essential factor in your personal credit history. Paying at least the minimum payment on time each month can help improve the score or solidify it to perfection.
2. Maintain your balance relatively low each month
Using your credit can influence your credit rating, so maintaining your balance low is a great decision. You can achieve this by using the card less frequently or making multiple monthly payments.
3. Use your card wisely.
Business credit cards may be an excellent form to pay for operating costs. But if you need to fund goods or equipment, paying it off can be more challenging.
Conclusion
Personal credit is influenced by business credit. Applying for your first business credit card can start a burdensome loan request on your loan, which can decrease your rating by a few points. The way you use your business credit card affects your credit rating. The most acceptable way to guarantee that your business credit does not negatively impact your credit is to use your business credit cards wisely. Keep your balance low, complete all costs on time, and pay off balances regularly.
Read also: Exactly How 13 Common Actions Make A Difference Your Credit Score
