Using company credit cards is an efficient way for employees to make business purchases. However, it may lead to overspending. Here’s how to manage...
Do Corporate Cards Build Credit Score? What You Need to Know
Corporate cards effectively organize business and personal expenses, but do they build credit scores?
Using business credit cards is one of the most effective ways to separate personal and business expenses. However, common misconceptions suggest business credit cards issued to employees affect their personal credit scores.
This article will shed light on the common questions about corporate credit cards and how they affect your personal and your business's credit score.
Understanding How Credit Scores Work
A credit score is a figure between 1,000 and 2,000, representing an individual's creditworthiness. Your credit score can influence your financial undertakings as lenders use this to determine their trust in your ability to pay back a loan.
A score between 1,911 and 2,000 is the highest rating possible, meaning you have a low probability of defaulting on the loan.
Financial institutions determine credit scores based on credit history. Factors like payment history, debt burden, types of credit, length of history, and recent credit card searches are all considered in uncovering your credit history. Credit bureaus maintain your reports on a 12-month rolling basis, so your score can improve over time.
Do Company Credit Cards Affect Personal Credit?
Some might think that having a corporate card can help improve one's personal credit score. As an employee, owning a corporate card will barely affect the cardholder's credit score because they fall under an "employee-to-employee" arrangement instead of a "bank-to-individual arrangement."
On the other hand, a business owner managing one or more corporate credit cards would need to be more careful as they must issue a personal liability guarantee to the card provider and take responsibility for all payments when the business cannot do so.
How do business credit cards affect personal credit?
Applying for a business credit card will trigger a hard inquiry on your personal credit. This credit check will have a minor effect on your credit score, but it's temporary. You can review your credit report to determine if your company has subjected you to a credit check.
Can businesses build credit with a corporate credit card?
Yes, corporate cards can help you build your business credit score. Using a company credit card aids in maintaining a low credit utilization rate, and responsible account activity may help improve the company's credit score, raise their credit limit and reduce their interest rate.
Additionally, corporate cards reduce incidents of incurring out-of-pocket expenses and unauthorized expenses made to a company, enabling better control and visibility over employee spending.
Businesses must build a good credit score, allowing them faster loan approvals or access to a line of credit at favorable terms and lower interest rates. Having access to liquid assets would benefit startups preparing to scale their business.
Small business owners can start building good credit early by paying on time. Late payments can significantly affect your business credit score, even if a bill is overdue by just one day. Make it a point to consistently monitor your credit rating with the credit bureau and send a dispute with the agency for any errors in reporting.
Give Credit Where It's Due
Corporate credit cards bear features that aid in managing business expenses, such as setting spending limits and tracking employee credit card activity. Partnering with the right card provider and having policies in place can positively impact your business credit score, opening doors to more funding opportunities.
Consider Spenmo corporate cards as your partner in business! Unlike traditional financial institutions, it only takes 30 minutes to set up a Spenmo account, giving you access to virtual cards in no time. Book a demo today to find out how corporate cards can help improve your company's spending practices today!
*Disclaimer: This article is for general education purposes only. Spenmo does not make any representation, assurance or warranty, express or implied, as to its services or products offered, in this article. For the avoidance of doubt, Spenmo does not purport to issue any credit cards and issues only business corporate cards, which function as a debit card.