Will Securing a Card for Business Hurt My Credit Score?
by Tiana Pyer-Pereira
When done improperly, securing a credit card for your fledgling company could end up crippling your personal credit score. Take precautions to keep your personal and professional lives separate. This includes establishing a proper business structure and avoiding personal guarantees on all business credit cards.
Avoid Personal Guarantees
David Gass, writing for "Entrepreneur" magazine, notes that the biggest mistake a business owner can make is using their personal information to apply for business credit cards, leases or loans. This gives credit agencies permission to put a number of business-related obligations on your personal account. You double the number of inquiries into your personal credit history as well as the number of obligations you're carrying. Both factors negatively impact your score.
Establish Separate Business Identity
The best way to prevent this is keeping personal and business finances completely separate. Establish an identity for your business independent from your own. First, form a corporation or LLC. This is the quickest, most widely recognized way of putting a barrier between your personal and professional assets.
Next, secure an Employer ID Number (EIN) from the IRS. Your EIN is something like a social security number for your business. Use this number in all financial reporting, from paying taxes to applying for a loan. Once you've registered your EIN, Personal Credit Bureau Services warns to never, ever use your personal social security number in a business context again, including on your credit card applications.
Register with Business Credit Bureaus
Unlike personal credit reports, which are generated automatically, business credit is largely up to you to create. There are three credit bureaus that track business credit information: Equifax, Experian and Dun & Bradstreet. Register with all three to put your business on the map as a credit-earning entity. Then check back regularly to make sure your credit is being reported correctly and that you're earning the type of solid reputation your business deserves.