In December, the CFPB reported that although an individual may sign personally for a credit card, if it is a business credit card many are not listed with the credit bureaus unless the card goes into default. There are also business credit cards that are approved with liability only on the corporation and will not show up on personal credit. How can this help consumers that use their personal credit for business expenses?

 

We have found that a great amount of business owners use their personal American Express cards for business. When they are ready to purchase a property or refinance an existing loan they may find their Fico scores are low due to high balances on revolving credit. Revolving credit balances have a greater impact on credit scores than other types of credit.

 

For example:

 

Business owner John has an Amex card with a limit of $40,000 and a balance of $38,000.  His second credit card (he uses for personal reasons only) has a limit of $10,000 and a balance of $5000. The $5000 balance is manageable and can be paid off at any time. Since his aggregate balance to limit ratio on revolving credit is 86% his scores have dropped 60 points and he no longer qualifies for the best interest rate on the large mortgage he needs. In this situation he may wind up paying an additional $200,000 over the life of his mortgage loan. In some cases applicants might even be rejected entirely due to a lowered score. Since he can’t pay the $38,000 on his business credit card debt he is stuck. If John had known in advance that there were other options things might be very different. With a business credit card that does not show on personal credit reports he could pay down the $5000 balance and his credit score would be much higher, affording him a much better cost mortgage loan.  This would have kept his business and personal credit separate giving him more options on his personal financing.

 

Whether you find a business credit card you must sign for personally, or you are applying for a corporate credit card without personal liability, your business and personal credit reports and scores will be reviewed. With the best scores approvals and better offers are much more likely.  With this knowledge a business owner might shop differently for a credit card. There can also be restrictive qualifications for approval on business credit cards depending on liability. Creditors check both personal and business credit scores for corporate liability. With the best business/personal credit scores and a healthy business history there are great offers out there giving business owners access to funds they might otherwise not qualify for. Making an effort to keep business and personal credit separate can work wonders and save a fortune for business owners.

 

To view your business and personal credit scores go: http://www.northshoreadvisory.com/orderreports.html