How a business credit card can enhance your personal credit scores

A well-chosen business credit card provides numerous advantages for small-business owners. It not only helps accumulate valuable points and miles but can also assist in building a stronger commercial credit profile for your business.

So, can a business credit card contribute to improving your personal credit scores? Unfortunately, the answer isn’t straightforward. While effective account management is crucial for maintaining a good credit score, there are several ways a business credit card could potentially benefit your personal credit score.

Build personal credit

Whether they are personal or business-related, credit cards play a significant role in establishing or enhancing your credit rating.

Most personal credit cards report account activity on a monthly basis to the three major consumer credit reporting agencies: Equifax, TransUnion, and Experian.

Business credit cards function somewhat differently. Most issuers provide your account information to one or more business credit bureaus each month. By opening an account, you can start to build a positive commercial credit profile. Although it’s not common, some business credit card issuers also share your account activity with consumer credit bureaus every month. When managed wisely, business credit cards can help you enhance both your business and personal credit.

Curious about which card issuers report to consumer credit bureaus, business credit bureaus, or both? Inquire with the card issuer about its credit reporting practices or refer to this guide for assistance.

Reduce personal credit utilization

This is where the real benefits for your personal credit score come into play. Utilizing a business credit card that doesn’t show up on your consumer credit reports can lower your personal credit utilization ratio, which can significantly impact your personal credit scores.

Many small-business owners resort to using personal credit cards for their business expenses, especially in the early stages. This decision could negatively affect the owner's personal credit scores.

The credit utilization ratio of your revolving credit card accounts plays a crucial role in determining your personal credit scores. A significant 30% of your FICO score is influenced by this ratio. The higher your credit utilization on personal credit reports, the more detrimental it is to your credit score.

To clarify, credit utilization refers to the proportion of your credit limit that is being used on a credit card or across all your credit cards. For example, if you have a credit card with a $5,000 limit and a $2,500 balance, that account is 50% utilized. Keeping this percentage lower is advantageous.

Imagine you open a business credit card that doesn't report to consumer credit bureaus. As long as you keep up with your payments, this account won't show up on your personal credit reports.

Using this business credit card will not affect the credit utilization ratio on your personal credit reports. Consequently, your personal credit scores won't suffer from high usage if you decide to utilize a significant portion of your business credit limit. You may still be spending the same amount monthly for your business, but you won't risk damaging your personal credit.

Some excellent options for your first business credit card include the Ink Business Preferred® Credit Card, the The Blue Business® Plus Credit Card from American Express, and the Bank of America® Business Advantage Unlimited Cash Rewards Mastercard® credit card.

Tips for managing your accounts

To effectively improve your credit rating—whether personally or through business credit bureaus—you must manage your account diligently.

Here are three smart strategies for managing your credit card:

1. Make timely payments. Over a third of your personal FICO score (35%) is derived from the payment history of accounts on your personal credit report. Payment history also plays a crucial role in business credit scores, like the Dun & Bradstreet Paydex report. Always ensure your business credit card payments are made on time to maintain a good credit rating.
2. Maintain a low credit utilization rate. Your credit utilization ratio is nearly as critical as timely bill payments when it comes to personal credit scores. While some business credit scoring models take utilization into account, it’s wise to pay off your entire statement balance each month to avoid interest fees. To ensure a low utilization rate appears on your credit reports next month, settle your balance before your credit card's statement closing date.
3. Be patient. The length of your credit history contributes 15% to your consumer FICO score and may influence your business credit scores too. Lenders prefer to see several years of credit history, so don’t worry if it takes a couple of years to see positive changes in your credit score.

The key factor in determining credit scores will always be your account management. Ultimately, credit cards are just tools, and it’s up to you to decide how to wield them.

In summary

Applying for and using a business credit card can help you manage business expenses while earning valuable points and miles. It can also contribute to improving your personal credit score.

Paying off your statements in full each month demonstrates to issuers that you are a responsible borrower with low credit utilization, which is a significant advantage for boosting both your consumer FICO score and business credit scores.