September 12, 2024

As a dentist who owns a private practice, managing both your personal and business finances efficiently is critical to long-term success.

One often overlooked aspect is how certain business credit cards can impact your personal credit score, which in turn can affect your ability to secure future loans, obtain favorable interest rates, and even expand your practice. Here’s what you need to know about business credit cards and their potential effects on your personal credit.

1. Some Business Credit Cards Affect Your Personal Credit Score

Not all business credit cards are treated equally when it comes to your credit report. For example, if you hold a Capital One Spark business card, it’s important to know that this card is reported on your personal credit file. Even if you make it a habit to pay off your balance in full each month, your credit score can still be affected. Why? Because if the card issuer reports your balance before you pay it off a high balance relative to your credit limit can affect your credit utilization ratio, which is a major factor in determining your credit score.

Your credit utilization ratio refers to the percentage of available credit you are using at any given time. For example, if you have a $10,000 credit limit, a 10% utilization means using no more than $1,000, while a 30% utilization means keeping your balance under $3,000. To maintain a healthy credit score, it’s ideal to keep this ratio between 10% and 30% (Experian). If your Capital One Spark card is a significant part of your credit portfolio, even routine business expenses can inadvertently raise your utilization rate and lower your score.

2. Request Regular Credit Limit Increases to Optimize Credit Utilization

One simple way to improve your credit score, whether personal or business-related, is by requesting regular credit limit increases. Increasing your credit limit can help lower your credit utilization ratio, giving you more breathing room while making necessary purchases for your practice.

For example, if your current limit is $10,000 and you increase it to $15,000, you can spend the same amount while lowering your credit utilization percentage. This is true both for personal credit cards and business credit cards. Regularly review your credit limits and consider asking for increases when appropriate. Not only does this give you greater financial flexibility, but it also strengthens your credit profile by keeping your utilization rate low.

3. Check Your Credit Report Annually

To fully understand how your business credit cards are impacting your personal credit score, you need to monitor your credit report regularly. Dentists, like all professionals, should run their credit report annually and carefully review each account to ensure accuracy and spot any potential issues.

Look specifically for business cards that may be reported on your personal credit file. If you see business credit card accounts listed, take note of their impact on your credit utilization ratio and overall score. This will give you a clearer picture of where adjustments might be needed—such as paying off balances more quickly or requesting a credit limit increase to maintain an optimal credit profile.

4. Choose Business Credit Cards That Don’t Affect Personal Credit

Fortunately, not all business credit cards affect your personal credit score. For instance, the Chase INK Business credit card is a popular option for business owners because it does not report to personal credit agencies. Cards like this allow you to separate your business and personal credit, reducing the risk of your business expenses negatively impacting your personal credit score.

Many dentists assume that opening a business credit card with a new bank means they need to open a separate business checking account, but that isn’t necessary. You can still maintain your long-standing banking relationships while strategically selecting business credit cards that offer the benefits you need, without affecting your personal credit score.

Understanding the impact of business credit cards on your personal credit is essential for safeguarding your financial future as a private dental practice owner. By monitoring your credit utilization, regularly increasing your credit limits, and selecting the right credit cards, you can maintain a strong credit profile that opens doors to future opportunities.

Make credit management a key part of your overall business strategy, ensuring that both your practice and your personal financial health remain in top shape.

Not sure where to start? Contact us today!

References

https://www.experian.com/blogs/ask-experian/credit-education/score-basics/credit-utilization-rate/