Disclosure: We get a commission for links on the blog. You don’t have to use our links, but we’re very grateful when you do. American Express, Barclaycard, Capital One, Chase, Citibank and US Bank are Million Mile Secrets advertising partners. Opinions expressed here are the author's alone, and have not been reviewed, approved or endorsed by our partners. Here’s our Advertiser Disclosure.
- The 5 dangers of applying for credit cards
- Does Applying For Credit Cards Ruin Your Credit Score?
- Does Cancelling a Credit Card Hurt Your Credit Score?
- Why Everyone Should Have a No-Annual Fee Credit Card
- Why Some Business Cards Impact Your Credit Score Less Than Personal Cards
- Does Getting Denied for a Credit Card Impact my Score?
I’ve explained the impact of applying & cancelling personal credit cards on your credit score. In those posts, I mentioned that business credit cards (from Citi, Chase, and American Express) don’t impact your personal credit score as much as personal cards, but let’s take a closer look.
In general, you don’t need to have an established business or a partnership or LLC to get approved for a business card. You can usually get approved for a business which you run as the sole owner. Or even businesses which you are thinking of starting or which you recently started. But you shouldn’t lie on the business card application form.
How Is Your Credit Score Calculated?
According to the FICO website, your credit score is determined by:
- 35% Payment History — (Do you pay on time?)
- 30% Amounts Owed — (Do you use a lot or little credit?)
- 15% Length of Credit History — (How long have you had credit?)
- 10% New Credit — (Have you applied for credit recently?)
- 10% Types of Credit — (Do you have different credit types?)
Why Business Cards Impact Your Credit Score Less Than Personal Cards
The main reason why business cards impact your personal credit score less than personal cards is because the credit line and spending on a business card from some banks are usually NOT reported to the personal credit bureaus (provided you don’t default on the loan).
Do note that Capital One does report business cards to credit bureaus, and Bank of America, Barclays, and US Bank could also do that.
Instead, the only impact to your credit score is the credit inquiry. Each time you apply for a credit card, the banks look at your credit report and that is called a credit inquiry.
Impact of Applying for Business Credit CArds
1. Length of Credit History (15%) – No Impact
Applying for a personal credit card will decrease the average age of your credit accounts, which will decrease your score.
But since a business credit card is not reported to the personal credit bureau, applying for a business card will not reduce the average age of your credit accounts.
2. Amounts Owed (30%) – No Impact
The amount you spend on a business credit card, as well as your credit line, is not reported to the personal credit bureaus and doesn’t impact your credit utilization ratio. This means that you could (theoretically) use your entire credit limit on a business credit card and it would have no impact to your personal credit score.
In contrast, using your entire credit limit on a personal credit card will usually reduce your score severely, even if you pay the balance in full once your statement closes.
The flip side of this is that since your credit lines aren’t reported to the credit bureaus, you won’t see a lift in your credit score for not utilizing all the credit which you have available to you i.e. a lower utilization ratio. But I like the option of charging large amounts to my business cards and not having them impact my personal credit score.
3. New Credit (10%) – Decrease
Each time you apply for a credit card, the banks look at your credit report (sometimes from more than 1 credit bureau). This is called a “hard inquiry” and stays on your credit report for 2 years. According to MyFico, in addition to impacting your credit score, lots of hard inquiries also suggest that you are a riskier borrower to banks.
But no one knows for sure the exact impact of credit inquires on your credit score, since the algorithm which calculates credit scores is a secret. But folks speculate that an 18 month old inquiry has less impact to your credit score than an inquiry only 1 month old.
The credit inquiry when you apply for a new business card is reported to the personal credit bureaus and this is the only impact to your personal credit score from a business card application.
Not only do business credit cards let you get more sign-up bonuses, they also have less of an impact to your personal credit score if they are Citi, Chase, or Bank of America business cards.
You don’t need an established business to get approved for a business credit card and can often get approved for existing businesses which you run as the sole owner or which you are thinking of starting.