Business credit cards can affect personal credit

Personal Business (album)

Personal Business (album) (Photo credit: Wikipedia)

Business credit cards can affect personal credit

Business credit cards can affect personal credit if the holder is not particularly careful with their use.  The CARD ACT provides important protections to consumer’s credit cards that do not apply to business credit cards.

  • 45 days notice to change terms after the first year is not required for business credit cards as it is for consumer credit cards.
  • Consumer credit card lenders are banned from imposing penalty rates on existing balances unless the card holder is 60 days late or more.
  • Penalty fees for consumer cards must be “reasonable and proportional” meaning no more than $25.00 for the first late or over limit penalty and $35.00 within the next 6 months.
  • 80 percent of business credit cards contain an “anytime change in terms clause”.

Keep a firewall between business and personal debt

If you’re a small business owner who routinely charges supplies or otherwise uses your business cards for travel, meals, vendors and other business related expenses remember that this heavy use could put your personal credit at risk.  If you are personally liable for these debts, as most small business owners are, these big credit balances will show up as personal liabilities on your credit records.  This heavily affects your very important debt to available credit ratio.  You should always be working towards the day when you achieve totally separate status for your business credit.

It’s important to understand that establishing separate credit for a business requires some time and an organized thoughtful approach.  A separate business address, separate bank account, EIN number, licenses, merchant account financing, registration with Dun & Bradstreet, getting a DUNS number to activate your business credit portfolio, finding vendors who are willing to give you a start and who report to Dun & Bradstreet are just some of the considerations you need to take into account.

In order to get top consideration from your bank for business credit it is important that you keep as high a balance as you can in the business account at all times.  This will increase your bank credit rating when combined with use of other services the bank may offer.  Steady high business deposits should exceed smaller withdrawals.  Good business credit is a marvelous asset to include if the time comes to sell your business

Corporation?  LLC?  or D/B/A

If you are a person who has not set up a separate entity for your business activities you are probably a d/b/a.  This is short for “doing business as.”  For instance: “Joseph Smith doing business as Joe’s Furniture Store”.  This is fine and you may have valid reasons for not putting more separation between your business and personal activities.  Still it is dangerous from a credit point of view.  Most people who do business this way have signed personally for their business credit card.

Since business credit cards can affect personal credit you may want to reconsider your D/B/A status

It’s safe to say that for most businesses as they grow there will come a time when the owner wants true separation of his personal and business activities.  Don’t wait too long to discuss this move with your accountant and/or lawyer if that is true for you.  Business credit cards can affect personal credit for most people who are self employed d/b/as.

To the merchant it makes no difference if the card used is a business credit card or a personal credit card.

 

Keep a bright line between business and personal money
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After practicing law for 37 years Edward F. St. Onge, Sr. now devotes all his time to helping consumers achieve a high credit score with amazing speed. Learn the counter-intuitive secrets to credit scoring through his down to earth instructions backed by extensive knowledge of the laws and trends. All of the latest tricks and techniques that they don't want you to know now at your disposal. At last a level playing field for the consumer!

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