A business credit card will affect your personal credit report but the way that it is affected all depends on the way in which you manage the credit card. It also depends on the agreement that you made when you signed up for the credit card.
Your business credit score is much like your personal score, a number that indicates the level of risk associated with extending credit to your company. This score is heavily influenced by you bill payments whether you make them on time or not. There are a lot of other things that influence your personal score and this probably be the reason why the business card will not show up on the personal credit report. The FICO score only consider the history of accounts on your report the business credit card (not present) won’t impact your this score.
This does not mean that there is a complete disconnect from these two lines of credit. If you recall you would have been asked to give a personal guarantee on the business credit at the time of the application. You would in essence be the cosigner, held responsible if there are any defaults to the business accounts. This agreement places both your personal finances and your personal credit at risk.
The depth of liability varies from one business credit card product to another. Some providers offer commercial liability meaning only the company is help liable and personal credit is not impacted. Then there are others where there is a joint liability which means that both the business and the business owner are held liable. Finally some providers insist that all business credit card applicants make a personal guarantee on the credit extended.
Even if you don’t see the card on your personal credit report keep in mind that it could appear at any time especially if you have several late payments or stop making payments altogether. If the account goes to collections it will add a stain on your personal report. Does this mean that you are doomed if you apply for a business credit card? Not so it means that you have to be extra diligent and manage your credit wisely. Below are a few tips to minimize the damage that an unpaid business debt can have on your report.
Communicate with your lenders. The moment that you foresee problems with cash flow and paying your bills you should contact your lenders to let them know. Explain your circumstances and find out what arrangements can be made to settle your balance in a way that is amicable for both of you. You might be able to arrange smaller payments over a longer term. You will also want to find out how your unpaid debts would be reported.
Do not neglect your other debts. If you do have the money continue to make payments on your other debts so that your credit is not adversely affected by multiple delinquencies.
Keep business and personal expenses separate. There are a number of reasons for keeping your business and personal expenses separate but when it comes to minimizing risks to your personal credit keeping them separate removes any legal leverage lenders might have. If you have been making this mistake start getting it right today!
Monitor your personal credit report. Keep tabs on your personal credit score to look out for any business activities that could appear on your account. Your personal guarantee could impact your FICO score and lenders could make mistakes in their reporting so if you find any errors be sure to report it and get it rectified as soon possible.