You may be surprised to hear that having a company credit card can affect your personal credit. That’s right, when you are an owner of the company, you may be liable for charges put on the company card.
However, the degree to which a company credit card influences your personal credit depends largely on what type of card it is.
To get you up to speed, this article will outline:
- The three factors that determine whether a company credit card reflects on your credit score
- How to mitigate the influence that it has on your credit
- Other frequently asked questions around corporate credit card solutions
Let’s dive in.
How Company Credit Cards Affect Your Personal Credit Score
The factors that influence your credit score largely depend on the type of card and its associated terms. From there, it’s important to consider who is paying off the card and how it’s being used. In addition, personal liability can have a significant impact on credit scores—most cards for SMBs require personal liability.
These variables largely influence how much your credit score will be affected either positively or negatively in relation to credit utilization ratios and timely payments.
Does a Company Credit Card Affect Credit?
Unfortunately most corporate credit card offerings for a small business, particularly those for a small business owner, tend to have an effect on your credit. The degree to which it influences your credit, however, differs between primary account holders and authorized users.
Primary Account Holder
A primary account holder on a small business credit card is typically the owner of a company, rather than an employee. When opening up a small business credit card as a primary account holder, you offer a personal guarantee of repayment. Thus, although the card is intended for business purposes, reckless usage, high debt, or irresponsible repayment schedules can still reflect on your personal score.
The process of how to get a business card approved is often the same as opening up a personal credit card. In addition, to review your business’ finances, your individual credit history and credit score may be checked. When that happens, your credit history and credit score will be checked as an individual, not as a company. Your balance will be reported to a major consumer credit bureau like Experian, TransUnion, and Equifax.
An authorized user of a company credit card is an individual who works for an employer and has been cleared to use that card.
Authorized users will not have their credit checked when they are added on to an owner’s small business credit card, and will often not be liable.
So, does a business credit card affect your personal credit? In short, it can but it largely depends on the exact card program and associated terms. It also depends on the corporate structure (e.g., sole proprietor vs. C-corp).
Mitigating a Company Credit Card’s Influence on Your Credit
To reduce the influence of a company credit card on your credit, there are three actions you can take:
- Push your company toward a corporate credit card. With a corporate credit card, you won’t have to worry about personal liability, reimbursement, or about changes to personal credit scores. However, for small businesses and startups, this is often not an option.
- Pay your bills on time, and keep your credit utilization ratio below 30%. The best credit scores keep this ratio below 10%.
Ultimately, for individuals, using a corporate credit card is a much smarter financial decision than relying on a personal card and company reimbursements.
Corporate Credit Card vs Charge Card: Which Affects Credit More?
If one is considering getting a corporate charge card instead of a corporate credit card, employees should not see any changes to their personal credit rating. The primary account owner is the one who would be impacted.
While charge cards can still influence your credit score as a business owner, they tend to have less of an impact on credit than credit cards. This is because:
- Charge cards do not factor into a credit utilization ratio, meaning that their impact on credit tends to be less acute than credit cards.
- Charge cards must be paid off at the end of every month. This prevents unpaid credit card debt from being reported to major credit bureaus.
The only case in which a corporate charge card would affect your personal score is if the business made a billing mistake and added it in your name. If you see that a corporate charge card appears in a personal credit check, take steps to speak with the person in your company issuing charge cards to remove your name from the card.
Does Using a Personal Credit Card for Business Affect Credit?
As an employee, using a personal credit card for business can have the largest influence on your credit score. Many companies will request receipts at the end of the month and reimburse you for purchases, but the wait time on this can be long.
In cases like these, your personal credit score can take a large hit.
Credit bureaus will see extra charges and see a higher credit utilization rate, negatively impacting your score. Instances like these are a good example of why a company might consider issuing company credit cards to employees.
How Do You Know If a Company Credit Card is Affecting Your Credit?
Typically, there are two ways of knowing whether a small business credit card is affecting your credit. Those are:
- Whether an inquiry was made when opening the card
- Whether your name is on the card
If neither applies, a company credit card likely won’t alter your credit score. However, the only way to be sure is to review your credit report to see if the card in question is included.
Finding a Card That Works For Your Business
The size of your business tends to be one of the largest determining factors as to the kind of card you can select and the effect it will have on your credit scores.
With a corporate charge card from Ramp—you can ensure you have a card that doesn’t affect your credit score when you apply.
What’s more, with Ramp’s advanced spend controls, you can automate away many of the situations that would negatively affect personal credit scores. Place spending limits, automate expense reports, and gain a firm grasp on both your company’s financials and your personal credit score.
See if you qualify today!
Loan.com. Does Having a Corporate Card Affect My Personal Credit Rating? https://www.loan.com/loans/does-having-a-corporate-charge-card-affect-my-personal-credit-rating.html
ValuePenguin. Corporate Credit Cards: How They Work, and Differences vs. Business Cards. https://www.valuepenguin.com/corporate-credit-cards-explanation-comparison
Nerdwallet. Small-Business Credit Card Vs. Corporate Card: Is It Time to Move Up? https://www.nerdwallet.com/article/credit-cards/small-business-move-to-corporate-credit-card
Wallethub. Virtual Credit Cards: What They Are & How to Get Them. https://wallethub.com/edu/cc/virtual-credit-card/65981/