Corporate vs. small business cards: Which is better for credit building?

While small business credit cards and corporate credit cards are both used by businesses to make purchases, there are many differences between these two types of business cards. The effect on cardholders’ credit scores is one factor, but that’s not the only variable. There’s a lot more that employees and business owners need to know.

Which is better for building credit, a corporate card or a small business card?

When you apply for a small business credit card or corporate credit card, the lender will probably also check your business credit score. Your usage of a small business or corporate credit card certainly affects your business credit score, but only if you already have a business credit profile. If you don’t, then you’ll start to build it by using your business card. 

Here’s how using each of these types of business cards will affect your personal credit and help you build business credit:

Building credit with a small business card

When you apply for a small business credit card, the lender will probably check your personal credit score. This hard inquiry is likely to temporarily trim a few points off your score.

If you’re an authorized user on a small business credit card, the issuer is unlikely to check your credit. But derogatory information associated with the account (such as late payments or too much debt) could appear on your personal credit reports. The good news is that it’s usually easy to have those blemishes removed right away, if you request to be taken off the account. 

By the way, only a few notable small business card issuers report all account activity on personal credit reports (for example, Discover and some Capital One cards). If the account reaches default status, a much longer list of small business card issuers, including American Express and Chase, will ding your personal credit reports.

If you’re the primary cardholder for a small business credit card and use the card responsibly, you’ll start building a positive credit history associated with your business. The longer you use the card, the more credit history you build, which in turn builds your business credit profile. 

Building credit with a corporate card

If you’re using a corporate credit card, late payments and other maladies shouldn’t affect your personal credit. Corporate credit cards are less likely to affect your personal credit score in general, although Experian reports that corporate card issuers sometimes check authorized users’ credit profiles, resulting in hard inquiries on their personal credit reports. 

But for what it’s worth, I’ve had two corporate credit cards and neither affected my personal credit.

There’s also much more separation between personal and business finances when using a corporate card as opposed to a small business card. Corporate credit cards can be thought of as tools that larger companies and their employees can use to buy supplies and pay for travel, entertainment and other business expenses.

Because of what it takes to qualify for these tools, your business should already have a credit profile by the time it’s ready for a corporate card. So, you likely won’t be building your business credit from scratch like you would with a small business credit card. However, the same credit-building rules apply here. If you want to maintain a positive credit history, you and your employees will need to use the card responsibly. 

Other considerations when it comes to corporate and small business cards

Beyond credit building, you should make sure that the card you get is suitable for your business. The most noteworthy differences between corporate and small business credit cards include the size of the business they’re intended for, the rewards they offer and the personal liability associated with them.

• Business size

  Generally speaking, corporate credit cards are intended for larger businesses, often those with established track records that have at least a few years in business and $1 million or more in annual revenue. Small business credit cards are for smaller companies, of course, but also sole proprietors, freelancers, gig workers and the like.

   

• Rewards

  You would think giant companies that spend enormous sums of money would receive the best credit card rewards. While corporate card rewards can certainly add up at scale, they’re often pretty meager in terms of the rate the business earns on every dollar it spends — often no more than 1 cent in rewards for every dollar spent. Small business cards, on the other hand, often include very generous rewards and other useful perks.

   

• Personal liability

  Corporate cards are typically backed by the business, whereas small business cards are much more likely to require a personal guarantee from the cardholder (likely the business owner).

  In other words, if a small business goes under, the owner could be held personally responsible for paying the card issuer back. Their personal finances and personal credit score could suffer.

  If you’re an employee using a small business credit card, chances are that you’re an authorized user, in which case you would not be liable for unpaid charges.

   

Which card is right for you?

In some respects, the decision might be made for you. That’s certainly the case for employees, who rarely have a direct say in which type of card their employer uses. But even for business owners, once the organization crosses $1 million in annual revenue, it’s likely the card issuer will recommend a corporate credit card program as opposed to a small business card.

If you use a corporate card, chances are it’s because your employer gave you one, and it won’t affect your personal credit score in most cases. 

Small business credit cards are products that anyone can apply for (as long as they have a business purpose). These are much more intertwined with one’s personal credit history — especially if you’re the primary account holder.

Tips to build business credit

To build business credit beyond just getting a business credit card, begin by applying for a Data Universal Numbering System (DUNS) number from Dun & Bradstreet, one of the three major business credit bureaus. It’s an important step in establishing business credit which is separate from personal credit. So, we’re talking less about sole proprietors, gig workers and freelancers here — this is targeted more at small businesses that employ additional employees all the way up to mid-sized and larger enterprises.

As Dun & Bradstreet explains, it’s also useful to bulk up your business’ financial footprint by applying for an EIN from the IRS and opening a business bank account. Some business loans and lines of credit report to business credit bureaus. Business owners can also take matters into their own hands and report lines of credit to Dun & Bradstreet as trade references.

The bottom line

When choosing between a corporate credit card and a small business card for credit building, the primary consideration is likely the size of the business. North of $1 million in annual revenue, you’re probably going to be better off with a corporate card, especially if you have numerous employees. Smaller businesses, as the name suggests, are likely better off with small business cards. 

Once you know which card suits your business size, you can continue building business credit with either of them by using the card responsibly and making sure your actions are reported to business credit bureaus like Dun & Bradstreet.

Have a question about credit cards? E-mail me at ted.rossman@bankrate.com and I’d be happy to help.