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Business credit comes with good news and bad news. The good news is more times than not it does not get reported on your personal credit report…and the bad news is also that it does not get reported on your personal credit report. That is why it is so important that you have established personal credit before heeding this advice.

Unless you’re Microsoft, chances are good that you have to sign personally in order to qualify for a business credit card. But other than the inquiry that shows up on your credit report when you apply for the business credit card, 90% of all business credit cards do not get reported on your personal credit report unless you default on the payment. If you do, then the account will get reported to your personal credit report and your credit score will be affected negatively.

Now why is this good for your credit score?

Well, the credit score only analyzes what it sees on your personal credit report. And given the fact that 30% of the credit score is derived from the ratio between your credit balance and limits on your report, not having a “maxed-out” business credit card showing on your credit report can be a very helpful thing for your score.

For example, let’s assume you have $50,000 in revolving credit available to spend. Let’s also assume that your credit score is a 730. If you were to go and max out these credit cards the next day, once the balance reflects on your credit report, your 730 credit score may drop to a 650. Now let’s look at the same situation where you have a 730 credit score but the $50,000 you spend is on business credit cards that do not report to your credit report. Your 730 credit score will remain a 730 credit score, and you will be able to get favorable financing even though you are carrying the same debt load as the previous example where the score dropped to 650. The credit score only scores what it can see; business credit that is not being reported on the personal credit report does not affect the score whatsoever.

But it is important to pay on time - if you do get business credit that shows on your personal credit report even if you are not late, that credit is treated exactly as if it was personal credit and having the business credit will not yield any benefit to your credit score whatsoever.

I suggest building your personal credit first before you attempt to build your business credit card portfolio because you do have to have good credit being reported to qualify for these business accounts. More good news - the credit card companies do not require that you have a business license or a corporation, and the simple classification of being “self-employed” is typically enough to pass muster.

My two favorite banks for business credit cards are American Express and MBNA. A good start would be to apply for a regular American Express charge card that needs to be paid in full each month and also an American Express revolving business card like “Blue for Business” that you can pay minimum monthly payments on. MBNA has a business credit card called Platinum Plus for business, which affords a low rate and a high credit limit. American Express will not report to your personal credit report regarding your business credit card unless you are approximately 120 days late. MBNA on the other hand will report the account to your personal credit report once you become 30 days late.

The flexibility and control that business credit cards give you with your personal credit score are worth their weight in gold, and in many cases will allow you to save countless thousands in interest on your next mortgage by affording you the highest credit score possible.

Edward Jamison, Esq.

For a limited time, get Edward Jamison’s highly acclaimed Credit Scoring Educational DVD and Book “Credit Savvy” at almost 90% off the retail price. Click here to learn more.

Edward Jamison is a credit scoring expert and concentrates his law practice solely on credit related issues. Since graduating from Duquesne Law School in 1999, Edward Jamison has helped hundreds of clients dramatically increase their credit scores in order to get better rates on their loans. A true master of the credit system, when needed to, he has successfully sued the three major credit bureaus and creditors to obtain results for his clients.

Edward Jamison is the brainchild behind the product Credit Savvy, numerous computer software products, and has appeared on television shows to educate consumers on credit scoring and identity theft. Edward has also written nationally published articles on the Fair Credit Reporting Act and Credit Scoring.

Certified by the State Bar of California to give CLE seminars to California Attorneys, he is a nationally recognized speaker on the issue of credit scoring and identity theft and is the Attorney of choice for credit related issues for contacts at the following companies: Platinum Capital, Washington Mutual, California Association of Mortgage Brokers, Merrill Lynch and numerous law firms.