Having a company credit card in your name may sound like a sweet deal, but it's important to realize that it could be impacting your personal credit score, both positively and negatively, whether you have excellent, poor or fair credit.
The impact that using one of these employee cards will have on your credit will depend on whether you are the primary cardholder or an authorized user, as well as whether it's a small business credit card or a corporate card.
With that in mind, let's take a look at the nuances you should understand before getting started with business credit cards. Both types of cards have various rates and fees, annual fees, rewards rates, credit limits and they have varying effects on your credit score.
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Will my credit score be impacted by using a company credit card?
As previously mentioned, the amount of impact that using a business credit card can have on your FICO score will vary, depending on your level of responsibility and what type of card you’re using. To that end, let’s take a closer look at the type of impact that you can expect.
Primary cardholder of a small business card: The impact will be the same as opening up new accounts for personal use. In this case, you can expect hard inquiries on your credit report and for your score to be affected by you or balances and payments.
Authorized user of a small business card: In this case, the effect on your credit history will roughly be the same as being added as an authorized user on a personal card. If the primary cardholder makes their payments and pays attention to their credit utilization rate, it could actually help your reputation with the credit reporting agencies.
Authorized user on a corporate credit card: In this instance, being an authorized user on a corporate card will have a relatively minimal effect on your credit reporting, if any at all.
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Small business credit cards vs. corporate cards
When you’re looking at the impact that opening a business credit card will have on your credit score, it's important to understand the difference between opening a small business card and a corporate card. A small business card is usually issued to freelancers or small business owners, while corporate cards are reserved for larger businesses and government entities.
If you’re a candidate for a small business card, the impact that opening a card will have on your score will be very similar to if you completed a card application for opening a personal credit card. Once you're approved by a card issuer for a small business card, it can help you build business through its own credit history, managing cash flow and rewards programs. Examples of such rewards include travel rewards and cash back.
If you’re the primary cardholder, you will face a hard inquiry upon card application and your payment history and credit utilization rate will directly impact your score. If you are an authorized user, you may also be subject to a credit check and the organization's balances and payments can affect your personal information.
However, if you’re being given access to a corporate card, the process works a little differently. Here, while you may be subject to a credit check, the impact on your score will be minimal and temporary. In addition, that usage and payment information will be reported on the organization's credit report and will not have an impact on your own.
How to ensure my company card isn’t hurting my credit score
As with any credit card, the key to ensuring that a company card isn't hurting your score is good credit monitoring. Checking credit frequently is the key to avoiding damage to your score because of identity theft and fraud. If you do find signs that something is amiss, you can always dispute your credit report, and, in addition to filing a dispute, you can also sign up for credit monitoring services and ask for a security freeze.
That said, in addition to being sure to monitor your credit, you should practice good credit habits. That means making your payments on time every month, paying as far above the minimum payment as possible, and being sure to limit any balances that you carry over on your card each month.
Business credit scores, too, differ from FICO scores in that they range from zero to 100 instead of 300 to 850.
Not sure where you fit on the credit score spectrum? Then you should start using a credit monitoring service to track changes to your credit score. Credible can get you set up with a free service today.
The bottom line
At the end of the day, while adding a business credit card to your credit history can be a big decision, it is usually one worth making. As long as you or the primary cardholder practices good credit habits, it can actually help your score.
You can improve their credit score through Credible’s partner product Experian Boost by choosing and verifying the positive payment history information that you want to add to your credit file.
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