Published 3/30/08 (Modified 3/8/11)
By MoneyBlueBook

Business credit cards have grown to become a commonly accepted and practical way for small startup businesses to acquire access to needed venture credit. Not only do they offer benefits unique to business office and supply demands such as higher credit lines, better credit card rewards, and more versatile expense tracking, they offer also the opportunity for growing businesses to build up their business credit history. This is important because one day the business may need to draw upon that developed business credit history to acquire corporate loans.

Individuals Can Apply For Business Credit Cards With Their Social Security Numbers

What many consumers seemingly overlook is that business credit card benefits can be available to them as well and are not reserved for complex business entities alone. Card applicants don't have to be part of a corporation or a limited liability company (LLC) to qualify. Ordinary individuals can go into business for themselves and establish their business operation as a sole proprietorship. If you are self employed, a freelance worker, or an independent contractor like myself, you may very well be operating as a sole proprietor already. In the eyes of the Internal Revenue Service (IRS), the government, and credit card companies, the individual and his or her sole proprietorship business are one and the same for legal and income tax purposes. The only significant difference is when it comes to record keeping and business tax deductions. As sole proprietorships are entitled to write off their business expenses against their income, most are encouraged to apply for and utilize an Employer Identification Number (EIN). This federal tax ID allows the sole proprietor to more easily keep their personal and business expenses separate so that business transactions can be more properly distinguished and categorized for tax deduction purposes. Having a separate Employer Identification Number apart from the individual's personal Social Security Number (SSN) also allows the individual to apply and obtain credit lines separate and distinct from his own personal credit history.

For ordinary consumers interested in taking advantage of the many benefits of business credit cards but aren't interested in actually writing off any business deductions, so long as they properly pay off the balance each month, they won't have to put up with any extraneous IRS tax filing obligations. Other than the introduction of a separate business credit line for the sole proprietorship or company applicant, the differences in usage between consumer and business credit cards are fairly minimal.

Business and Personal Credit History Scores Are Reported and Recorded Separately

While they may be taxed as income generated from the same source, the sole proprietor and his or her business entity are treated separately for credit recordation purposes. Their credit histories and credit scores are not intermingled or consolidated when it comes to reporting credit transactions to the credit reporting agencies. In fact, the way they are reported differ as well.

Business credit scores range from a scale of 0 to 100 with 75 generally regarded as an excellent credit rating (example of a business credit report). Some agencies even report their own metrics such as Dun & Bradstreet (DnB), which reports its own Paydex score regarding the likelihood of credit delinquency. There are different types of scoring methods used for personal credit scores as well, but the most popular one is the FICO score, which ranges from 300 to 850 with 700 regarded as excellent. Both business and personal scores along with their accompanying credit history attempt to reflect the individual or business entity's credit worthiness based on past and current credit lines, credit inquiries, and history of paying back outstanding debt.

Even With An EIN, Business Credit Card Applications Usually Require SSN's As Guarantees

A true business or corporate credit card is a line of credit that is offered solely under the name of the business entity with all activity reflecting only on its own business credit history through business credit reporting agencies like DnB, Equifax, and Experian. However, the vast majority of online business credit cards still require that the business card applicant provide a personal guarantee for business credit liability. That is why card issuers almost always still ask for both a business tax ID as well as the Social Security Number of the person applying for the card. There are ways to obtain a business credit card through local banks and major card issuers using only a EIN without the need of a SSN, but those types of cards are strictly limited to established businesses that have developed and extensive credit histories. Thus, unless your sole proprietorship has a long standing and proven credit rating with a major business credit reporting agency like DnB, you will be required to associate your SSN as a guarantee for unpaid debts.

How a business card application will impact the respective business and personal credit reports depends on the card issuer's policy, but in the vast majority of cases, an initial and one time hard credit check is applied against the applicant's personal credit history like any consumer credit card would for approval purposes. While the inquiry itself will show up on the personal credit report, the business credit card balance and credit line will not. This hard credit inquiry is only for the initial approval. Subsequent business credit activity will be recorded on the business' separate credit history report solely, unless there is something like a missed payment. Because most online business credit cards are backed by the cardholder's personal credit and linked by his or her personal SSN, in the event the business entity enters default such as by filing for bankruptcy, the default may be reported on the personal credit report. But in general, business credit activity is kept separate from the associated personal credit file. This is the case for all major business credit card issuers like Citibank, Chase, and American Express.

However, despite the association of the applicant's SSN with the business card as a guarantor, so long as the card payments are made properly, there is no business credit balance or credit usage impact on the individual credit history report other than the initial application inquiry hit.

Applying For A Credit Card With Just A Business Tax ID, Without A Social Security Number

For various reasons, including wanting to keep a pristine personal credit history report, or fear and paranoia about identity theft, some card applicants may seek to apply for a consumer or business credit card with just a business tax ID, without having to provide a personal SSN as a liability guarantor. Unfortunately that is not possible with the majority of online credit card offers. With regular consumer credit cards, attempting to replace the SSN with an EIN on the card application will likely result in a rejection letter as well.