Carrying Business Balances on Your Personal Credit Cards Can Sink Your Credit Score

3D Credit Score DiceOne of the core pieces of advice that business owners should follow is to not mix business finances with personal finances. The reasons for heeding this advice are many. Commingling business and personal finances can complicate record keeping and tax filing. It can also lead to legal problems should your business face any sort of liability which could put your personal assets at risk.

The problems of commingling are further compounded if you develop the bad habit of carrying business balances on your personal credit cards. Quite simply, it can sink your credit score which could make it very difficult to get financing for your business or personal needs.

Credit Scores and Business Balances

There is no mystery to what factors can adversely affect your credit score. Certainly missed or late payments are a primary factor. But because an inability to keep payments current is often the result of amassing more debt than your cash flow can support, the next most important factor that is considered by credit rating agencies is the size of your balances on each credit card.

If you are carrying business balances on personal cards, this will negatively impact your overall score as it raises the amount of total credit you are using. Your credit score is impacted by the amount of your total balances in relation to your available credit. Even if you make your payments on time, carrying large balances will cost you points on your credit score.

Business Credit Cards

There are different types of business credit cards. Some are truly business obligations only and do not impact your personal credit scores. To obtain these, a business usually needs to have several years of operating results and also minimum annual revues.

The more typical type of business card for small businesses is actually one that is issued based on the owner’s credit score and therefore gets reported on your personal credit report. It may have your business name on it and be billed to the business, but it is guaranteed by the owner. So the amount of available credit and outstanding balances on these cards can also impact your credit score.

Switch to Business Credit

New business owners often use personal lines of credit to finance business expenditures out of necessity. In a young business, cash flow is usually an issue, and it’s too soon to be able to establish a line of credit for the business. But it is important for new business owners to manage this use of personal credit and switch to business credit accounts as soon as it is practical to do so. Talk to your bank about their different credit options and what is required to qualify for them so you can begin building your business credit.

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