Business credit cards offer some of the most enticing points-earning schemes and signup bonuses, but most people know very little about these cards or whether they qualify for one. Part I of this three-part series examined the eligibility requirements for business cards; Part II discusses the significant but little-known differences between business and personal credit cards; and Part III will highlight my favorite business credit cards.
To points and mile gurus like myself, the most important difference between business and personal credit cards is that business credit card applications proceed along different tracks than personal credit card applications. This is critical because, no matter how high your credit score is, issuers will eventually start to decline a person who applies for too many of their personal credit cards in a short period of time (though Barclays is notorious for approving four or five personal credit card applications in the same day!). Business credit card applications, however, are considered to be distinct from personal credit card applications, so a person who has exhausted his personal credit with a given issuer may nevertheless be eligible to capitalize on an enticing business offer.
For instance, I have three personal credit cards issued by Chase (Sapphire Preferred, Freedom, and Hyatt), and recently cancelled a fourth (United Explorer). Based upon my conversations with Chase credit analysts during my last two applications, I sense that I run a high risk of being declined for a Chase personal credit card if I apply for one in the next six months or so. I need to cool down a bit and dispel the ridiculous notion that I’m taking advantage of signup bonuses with no intention of using the cards after hitting my minimum spend requirements. But business credit cards are a different beast; they’re personally guaranteed by an individual (me), but they’re issued to a business (Points on the Dollar). So although I’m proceeding cautiously with Chase personal cards, I recently applied for the Chase Ink Bold business card and was approved (albeit not instantly . . . I had to call and speak with a credit analyst). The blogosphere is filled with anecdotal reports that many people are even approved for business and personal counterparts of the same credit card – like the personal Starwood card and the business Starwood card – on the same day. I haven’t tried that one yet.
Perhaps the most surprising difference between business credit cards and personal credit cards is that, although business card applications trigger hard credit inquiries just like personal card applications, business cards typically do not appear on a person’s credit report. Neither of the business cards I own (American Express Business Gold and Chase Ink Bold) appear on any of my credit reports, so I can personally vouch for the fact that neither American Express nor Chase business cards appear on an individual’s credit reports.
Note: I applied for the American Express Business Gold card when it was offering a 75,000-point signup bonus; there is currently no signup bonus, so I would recommend holding off on this card.
Why does this matter? Because one of the factors that credit reporting agencies consider in calculating a person’s credit score is his/her “length of credit history”: the longer the average length of outstanding credit accounts, the better. This factor accounts for 15% of a person’s credit score, according to FICO. But business credit cards that are not reported on personal credit reports do not affect the average length of an individual’s credit history. Applying for new business credit cards, therefore, typically will not decrease the average age of a person’s outstanding credit accounts. By the same token, longstanding business accounts typically will not increase the average length of a person’s outstanding credit accounts.
Moreover, business credit cards typically do not affect the “amounts owed” component of an individual’s credit score. This component has to do with the percentage of outstanding available credit that a person actually uses (the lower the better), and accounts for 30% of a person’s credit score. As a result, outstanding debt on a business credit card typically is not factored into the numerator when calculating the percentage of available credit that a person actually uses (good). Likewise, the amount of credit available on a business credit card typically is not factored into the denominator (bad).
There are also differences between business and personal credit cards with respect to how past-due debt is treated. The quick version of the story is that personal credit cards are subject to certain consumer protection laws that do not apply to business credit cards, and business credit cards are therefore permitted to increase interest rates on past-due debt in a more punitive fashion. U.S. News and World Report discusses the topic in some detail here.
That’s all for Part II; please stay tuned for the final installment of this series, which will discuss some of my favorite business credit cards. If you’d like a quick refresher on some of the credit score concepts I addressed in this post, head on over here.
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