Regularly broaching credit limit on business card brings risks
But it's less likely to hurt your credit score than maxing out a consumer card
By Elaine Pofeldt
Your Business Credit
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.
Ask Elaine a question
or read her prior answers in the 'Your Business Credit' archive
Editor's Note: Your Business Credit is a new column featuring reader
questions about small business and credit. Elaine Pofeldt will be giving advice
based on her own research and interviews with finance experts. Pofeldt is an
entrepreneur and business journalist whose work has appeared in Fortune Small
Business, Money magazine and many other publications. Please send relevant
questions to Your Business Credit.
Dear Your Business Credit,
I have a small business I run from
my house and I regularly make $1,000 to $1,500 purchases on my credit card with a
$1,600 limit to get the cash back. I always pay off the entire amount within a
couple days. Can this be bad for my credit? --
Thank you for your question. I'm
excited to be writing this new column for CreditCards.com, and hope I'm able to
save fellow small business owners like yourself valuable time digging for
When I described your credit card
habits to Emily Chase Smith, an attorney who specializes in debt solutions, she
said it appears that you are using your credit positively overall. Your credit
scores are based on how you handle credit, and if you are staying within your
credit card's limit and paying off the balance on time, you should be building
a strong credit history.
You didn't mention if you use any
other credit cards. If this is your only credit card or you have borrowed to
the limit on a bunch of other cards, your actions may be lowering your FICO
scores, says Chase Smith. Lenders use these scores, issued by the three major
credit reporting bureaus, to determine your creditworthiness. Approaching the
"ceiling" of the credit that has been extended to you can cause your scores to
drop, she says.
It's also not clear from your note if
your credit card is a business card or personal card. Either way, your
borrowing would affect your personal credit rating in most cases. Here's why:
It's very difficult to get an unsecured line of credit on a business card,
according to Chase Smith. "Almost across the board, they're personally
guaranteed, whether people realize it or not," she says.
Credit card issuers may report your
usage of a business card for which you've made a personal guarantee to credit
bureaus. That said, the chances of them doing so are less than for a personal
card. A December 2012
report by the Consumer Finance Protection Bureau says that card issuers usually
report monthly on consumers' revolving credit lines to the bureaus "but are
less likely to report on small business cards, even when these are owned by,
and underwritten based on, the personal credit history of the business owner."
Typically, card issuers will not report
to the bureaus about a business card with a personal guarantee unless you have
gone into default, according to John Ulzheimer, president of consumer education
at SmartCredit.com. "If it is a small business card, and the issuer of the card
happens to report it to the consumer credit bureaus, then the card is treated
no differently than a true consumer credit card," he says.
Taking a look at your credit
reports is a smart habit and will give you a
clear idea of where you stand. Under the Fair Credit Reporting Act, you are
entitled to get a free copy of your credit report every 12 months from each of
the three national credit reporting companies: Equifax, Experian and
TransUnion. For details on how to order one, go to annualcreditreport.com, call 877-322-8228 or complete the Annual
Credit Report Request Form and send it to Annual Credit Report Request
Service, P.O. Box 105281, Atlanta, GA 30348-5281
See related: In case of default, business credit cards get personal, How to keep a small business credit limit from being cut, 5 things you should know about business credit scores
Elaine Pofeldt is a journalist who specializes in entrepreneurship and careers, contributing to publications such as Fortune, Money, Working Mother and many others. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com, a website for independent professionals.
Elaine answers a question about small business and credit from a CreditCards.com reader each week.
Send your question to Your Business Credit.
Published: December 31, 2012