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How Does a Business Credit Card Help Your Credit Score?

By September 19, 2016May 21st, 2020Insurance

Business Credit Card

Business credit cards can be much more than a convenient way to pay for purchases. They’re safer than other payment methods, thanks to federal regulations that protect cardholders from paying for fraudulent purchases, they can offer a line of credit for short term emergencies or working capital, and some cards can be very rewarding as well.

But there’s another benefit many business owners overlook: Business credit cards can help you build business credit. But they can also hurt your credit scores if you don’t understand how the process works.

So before you apply for a business credit card, or if you already have one, you’ll want to understand how to leverage it to build and keep strong credit.

How Business Credit Cards Report
Business credit cards are those that are specifically marketed to small business owners. Most creditors who issue these cards will run a credit check on the owner’s personal credit history. The decision to issue a card will hinge on that information, as well as other factors, such as income, but personal credit scores will play a key role.

But once you get a card in the name of your business, it probably won’t show up on your personal credit reports unless you fall seriously behind. Only one of the major credit card issuers reports all business credit card activity to the cardholder’s personal credit reports.

Most card issuers, however, report information to the commercial credit reporting agencies and/or the Small Business Financial Exchange, a data exchange used by most of the major commercial lenders to share information about how borrowers handle their accounts. (The SBFE is not a credit reporting agency, though. Instead, credit reporting agencies like D&B or Equifax will access the data the SBFE collects to include in some versions of credit reports, and to calculate certain credit scores.)

What It Means To You
In other words, a business credit card, paid on time over time, is likely to help you build credit with at least one or more of the business credit agencies. It’s not likely to help build your personal credit scores, though, unless your card issuer reports all activity to personal credit reports. (This article describes which business credit cards report to personal credit reports.)

Give Yourself An Advantage
Payment history is the most important factor that makes up both business and personal credit scores, but with business credit, it often carries even more weight than with personal. And since many business owners have limited credit histories, a few missed payments can really hurt their scores. For that reason, you want to be scrupulous about making your payments on time.

As a busy business owner, though, it’s easy for something like a due date to slip your mind. So set up text message or email alerts to remind you when payments are due. And consider at least putting your minimum payment on autopay, so you know that will always be paid on time. (As long as you make the minimum payment on your credit card on time, your payment history won’t be dinged.)

What if you’re nervous about using credit cards, but you want to build a credit history? Consider getting a business charge card. You’ll be protected against fraudulent use, but the bill will be due in full, so you won’t be tempted to run up debt you can’t pay. Plus a charge card will help you build your credit history, unlike a debit card that won’t.

Business credit and charge cards, if used correctly, are a great way to build your business’ reputation as a reliable borrower. Consider using business credit cards to protect your personal credit, build your business credit, and take advantage of the expense management tools and benefits, like cash back, airline miles and sign-up bonuses.

Is your small business credit score holding you back? Get your free credit score from Nav to see how your business is performing.


Source: By Gerri Detweiler, Head of Market Education, Nav – September 13, 2016