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Credit Scores: Why Some Business Cards Impact Your Credit Score Less Than Personal Cards

Credit Scores:  Why Some Business Cards Impact Your Credit Score Less Than Personal Cards

Million Mile SecretsCredit Scores:  Why Some Business Cards Impact Your Credit Score Less Than Personal CardsMillion Mile Secrets Team

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Additional Reading:

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?)
Fico Score Calculation (Image from MyFico.com)
Fico Score Calculation (Image from MyFico.com)

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.

Bottom Line

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.

 

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Editorial Note: We're the Million Mile Secrets team. And we're proud of our content, opinions and analysis, and of our reader's comments. These haven’t been reviewed, approved or endorsed by any of the airlines, hotels, or credit card issuers which we often write about. And that’s just how we like it! :)

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I just called Chase to inquire about the Ink Plus card. The customer service rep told me that since I am the one opening it, even though it's for my business, the card would be reported and effect BOTH personal and business credit reports. Everywhere I look, I keep reading that Chase doesn't typically report to personal credit bureaus unless you default, so I don't know what to believe. I already have a business gold AMEX but would like to have the Ink Plus as a primary since AMEX isn't accepted at as many places. Any ideas?

Firstly, thanks for the great post.

I'm preparing for a churn and want to cancel some unnecessary or redundant cards. In particular, I have a pers and biz card with Amex (spg) and with BOA (Alaska Air). Do you think it would be better to hold on to the personal or biz from each bank? Do the biz card cancelations get reported if the applications don't?

Thanks for your sage advice!

If I carry a balance on a Chase Ink Cash Rewards card (with the 0% APR for 1 year intro offer) will that be considered missing a payment, and thusly affect my personal credit because it will be reported?

Author
Million Mile Secrets

@Joe - Not as long as you make your minimum payments.

Applied for Amex Business Blue and received notice I was approved and would be receiving my new card in 2 to 3 business days by courier. I noted to send statements to office address, so is this also where they will also send the new card? No one is at the home address during the day, thus no one would be available at home for a courier to deliver to, but would be at the office?

Author
Million Mile Secrets

@MikeD - That should be where they send the card.

Thanks for posting all this useful info! I really want to apply for the Chase Ink Bold while it's still at the higher sign up bonus, but I will be applying for a mortgage next year. Do you think it's wise to apply for the business cc?

Author
Million Mile Secrets

@Jen L - One card shouldn't matter, but do what you're comfortable with!

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