I started using business credit cards to maximize my spending, but as a side benefit my personal credit score increased by 50 points
- There are a lot of great reasons to consider applying for a business credit card, including high sign-up bonuses and comprehensive cardholder benefits.
- Plus, putting purchases on a business credit card instead of a personal one can raise your personal credit score by cutting down on your debt-to-credit utilization ratio.
- As a freelancer, I'm able to qualify for business credits, and putting spending on these cards has had the effect of increasing my personal credit score.
- I carry several business credit cards, including the Ink Business Preferred Credit Card and the Marriott Bonvoy Business™ American Express® Card.
- Read more personal finance coverage.
For most of my adult life, I only carried personal rewards credit cards. First it was to help build my credit, and then it was to earn cash back and rewards points toward free travel.
In the past few years, however, I have broadened my rewards credit card strategy beyond simply looking at personal credit cards to include business credit cards as well. Among the many other benefits this approach has afforded, doing so has helped improve my credit score.
Reasons I applied for business credit cards
My reasons for first looking into business credit cards were simple.
First, I was beginning to come up against the limits that several issuers including American Express and Chase impose both on the overall line of credit they would extend to me as well as the number of cards they will permit a single person to open or carry.
Second, doubling down on earning opportunities with my main points currencies, like Chase Ultimate Rewards and Marriott Bonvoy points, was my primary concern.
I had already garnered most of the sign-up bonuses from personal cards I was interested in and I was looking for other sources from which I could reap tens of thousands of points or miles in a short period of time. And, as a freelancer, I knew I was able to qualify for most business credit cards.
To take one example, I earned a sign-up bonus with the Chase Sapphire Reserve a few years ago, but needed to replenish my account last year. At the time, the Ink Business Preferred was offering a welcome bonus of 80,000 Ultimate Rewards points for spending $5,000 in three months, which made it very attractive to me.
Second, I was intrigued by the bonus earning categories business credit cards tend to offer -they're different than those on personal cards. To take the same card pairing, while the Chase Sapphire Reserve earns 3 points per dollar on travel and dining, the Ink Business Preferred earns 3x points on travel purchases as well as on shipping, internet, cable and phone services, and advertising on social media sites and with search engines, on up to $150,000 in combined purchases each year. It also confers cell phone protection, which the Chase Sapphire Reserve does not.
However, in addition to helping me earn more points on more categories of purchases, I soon found out that opening and then putting more of my purchase activity on my business cards would also improve my personal credit score.
What determines your credit score?
First things first. What I'm actually talking about is my FICO score, which stands for Fair Isaac Corporation. This is the rating used by about 90% of lenders, including credit card issuers, but also entities that finance home and car loans.
There are five major factors that determine your FICO score, and each is weighted differently. The most significant is payment history, which basically means whether you make your monthly payments on time and in full. It counts for 35% of your overall score.
The second most important metric is amounts owed, which accounts for 30% of your score. This basically tabulates how much money you owe, i.e. how much you have charged, versus your overall credit limit. The more purchases you make or debt you carry compared to your overall credit line, the higher this ratio will be and the more negatively it will impact your score. Sometimes this is referred to as the debt-to-credit or utilization ratio. This is the major sector in which business cards helped me pull ahead.
Credit history and the age of your accounts is another 15% while the types of credit you have, such as credit cards, mortgages and student loans counts for 10%. Finally, whether or not you've opened new lines of credit lately, including cards, makes up the final 10%.
How business credit cards helped my personal credit score
When I received my business credit cards, I put a significant portion of my spending on them in order to ensure I would qualify for their welcome bonuses. This was not new or irresponsible spending, mind you; just purchases I would be making anyway and paying off on time.
After the first few months, I continued to use them more than my personal credit cards because I was earning bonus points on the purchases I was making, such as general travel bookings including airline tickets, rideshares and hotel stays with my Ink Business Preferred. Likewise, my Marriott Bonvoy Business American Express Card earns 6x points on eligible Marriott purchases, but also 4x at US restaurants and US gas stations - two other big categories for me - and 2x on everything else.
Put simply, the business credit cards just seemed to fit my spending patterns better. Around six months in, I also noticed my credit score was creeping up. It was already in the range of good to excellent, so it didn't really have far to go.
I was able to track it thanks to the fact that several of my credit cards, including my Citi Premier℠ Card, Barclaycard AAdvantage Aviator Red, and Amex EveryDay® Credit Card from American Express, all offer me free access to my credit scores whose progress I can view over the course of several months.
Depending on the credit bureau, I estimate my score went up by about 50 points in just over six months, and now rests comfortably at well over 800 points.
I also checked in with my free Credit Karma account, which suggests reasons for the change in your score. That's when I realized that I was putting more of my spending, and more of my larger purchases in particular, on my business cards, and that it was driving down my amounts owed as factored into my personal credit report. In turn, that was boosting my personal score.
I had applied for my business credit cards using my own FICO information, thus guaranteeing them personally. But once established, the activity on them was reported to the business credit bureaus rather than the personal ones. This tends to be the case unless your account is not in good standing. By being responsible and making all my payments on time, I kept all the activity on my business cards separate from my personal credit report.
What's the big deal? Well, the next time I go to take out a loan for a car or house, having a credit score that's 50 points higher than it would have been might just allow me to lock in a better rate on my loan, saving me money both in the short and long terms.
What's next
Now, in addition to continuing to use my business credit cards, I'm considering applying (again, responsibly) for additional personal rewards credit cards. The new accounts might nudge my personal credit score lower in the short term by impacting the factors based on length of account and types of credit.
However, in the long term, they should boost my score. That's because I will have even higher lines of personal credit at my disposal. But I will be using less of that credit as listed on my personal report thanks to my business cards. In turn, that will make my debt-to-credit ratio look better yet again to the credit bureaus.
While I do not recommend overextending your resources or spending irresponsibly in order to obtain more credit cards, leveraging your existing credit and using business credit cards can actually help raise your FICO score, as it did mine. And in the end, that should help me secure even better loan rates and lines of credit in the future.
Click here to learn more about the Ink Business Preferred Card.
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