When starting a business, the number one rule is to make sure all business and personal affairs are kept separate. However, when it comes to your credit, this separation is nearly impossible. Since using a business credit card is a popular means of acquiring funds, it is important that all entrepreneurs understand how it impacts their personal credit report.
How Your Personal Score Factors In
Because business card issuers typically do not require collateral, most require a personal guarantee. Some will even report your account activity on your personal credit report. Before the issuer opens an account, they will likely require a personal guarantee agreement. Essentially, this agreement states that you will be personally liable for any balances you incur on the card, and your business will be liable.
This agreement protects the card issuer, in the event that your business fails or there is not enough cash flow to cover on-time payments. Basically, you have co-signed the account. If you fail to keep up with payments, the card issuer has the right to go after your personal assets for repayment.
There are two other ways business credit cards impact your personal credit that you should be aware of:
- Because they require a personal guarantee, card issuers will want to know that your personal credit is in good standing. They will more than likely ask for an employer identification number or a Social Security number. The issue? When the credit card company runs what is called a hard inquiry on your personal credit report, it can have a temporary negative effect on your credit score.
- Ongoing Reports. Depending on the business credit card issuer, some will report all of your account activity to your personal credit report, while others will notify credit bureaus only when you fall behind on payments.