A business credit card can be an invaluable tool for business owners. It can allow them to put expenses on credit that can be paid later when they’re paid by customers, making cash flow problems easier to manage.

But if not used well, a business credit card can cause the small business owner’s credit score to drop, affecting their personal credit.

Just like a consumer credit card, a small business credit card will have balance and payment information recorded on the credit histories of the primary account holder. If the business card is managed well, it won’t hurt your credit.

Carrying too much debt

There are a number of ways to cause a credit score to drop. One that may affect business owners the most, though, is carrying too much debt on their business credit card that raises their debt-to-credit ratio, also called a credit utilization ratio.

This is the total amount of debt divided by the total amount of credit you’ve been extended — both personal and business. Keeping this number at 30 percent is a good way to improve a credit score. Much higher and lenders may consider you more of a risk.

Because business and personal credit card balances are combined to calculate a debt-to-credit ratio, having a large balance on a small business card, or even a balance near the middle of your credit limit, can have a huge impact on your credit ratio.

If a business and personal credit card each have $5,000 limits, carrying a $1,500 balance on each card will get you to the 30 percent threshold recommended by many experts.

Other business spillovers

Most small business credit cards require the cardholder to personally guarantee the debt. If the balance isn’t paid off through the business, the owner must pay the entire amount out of their personal pocket.

If there’s a problem paying a business credit card bill, the card issuers may report it to the cardholder’s personal credit reports. Some card issuers will report all activity, negative or positive.

Again, this isn’t a problem if you pay your business card on time and avoid high balances. Such habits on a business credit card may help boost a credit score when combined with a personal credit report. But using a business credit card too often could hurt your personal credit.

On the other side of this issue, if you have a thin credit profile because you don’t use credit cards but use cash and a debit card, adding a business credit card to your finances should help your credit score.

Paying on time and in full

Not making on-time payments and not paying the bill in full each month can also hurt your credit score. As a business owner, you should weigh your company’s cash flow to make sure you can pay your business credit card bill in time and in full each month.

Remember that paying the balance off in full each month is a matter of timing. The balance that’s reported to the credit agencies is usually the balance of the statement closing date, not after a payment has been made. To have a lower balance be reported, make your payments before the statement closing date, or ask the issuer what date it reports payments made.

Too many credit applications

Having too many recent applications for credit, including for a business credit card, can drop a credit score.

Two credit applications in a short period of time isn’t a big deal, but more can be interpreted as a sign of financial distress and that you owe a lot of money.

When applying for a small business credit card, don’t apply for several business credit cards at once. If you’ve recently applied for a few personal credit cards, then wait a few months before trying to get one for your business.

Don’t seek a home loan

Another type of loan to avoid when applying for a business credit card is a home loan. Wait until your home loan closes before applying for new credit cards. A new inquiry into your credit for a credit card can delay your home loan.

Also avoid applying for a small business credit card when applying for other types of loans, such as a small business line of credit, auto loan or other type of major loan.

Finally

Before opening a small business credit card, check with the credit card issuer to see if it reports your business card activity to your personal credit reports. Chances are you don’t want your business activity to spill over into your personal finances and credit reports.

If the issuer doesn’t combine them, it make using a business credit card a lot easier. Stocking up on holiday inventory, going to a big tradeshow, or just buying supplies to prepare for a big order can be key times to need such a credit card without having the activity combined with your personal credit file and bringing down your credit scores.