19-Aug-2017 written by : FSI-Team
Corporate credit cards have become a very common business tool these days. The employee charges the approved work expenses to the card and the company takes the responsibility of paying the bills. This is especially convenient for employees who travel for business extensively.
Though it is a fairly simple process, what confuses most people is maxing out the card affect the employee's credit utilization ratio? If the employer fails to pay the bill, is the employee liable for the outstanding amount? Does non-payment or late payment hurt one's credit rating? Let's explore.
Corporate credit cards are issued in different ways. The one's which have individual liability make the employee responsible for the credit card charges even if the employer is paying the bill usually. Here you fill out an application and the bank runs a credit check before issuing the card to make sure that you do not have any derogatory remarks on the credit report. A new credit enquiry brings a temporary dip of around 10 points in the credit score. This should not bother you much unless you require a loan in the near future.
The cards with joint liability make both the employer and employee liable. The employee has to take the onus of the bill in case the employer defaults. The ideal card for employees is the card where the corporation owns the responsibility of the card. Read the account opening documents carefully when you sign up for the card. Make sure you understand the liability that you are agreeing to. In case it's been a while that you hold the card you can check your credit report to see whether the corporate card usage is affecting your credit profile.
A lot also depends on the card issuer's reporting policies. Some corporate card issuers do not report the account information and monthly activity on the employee's credit report as long as the corporation is making timely payments. This means that responsible usage of the business credit card won't benefit your credit score in any way. However if the payments are 60 to 90 days overdue and the account goes into collection then delinquencies are reported to the bureau and affect the employee's personal credit profile negatively. Even if the company is responsible for the payments it is the employee who bears the consequences of non-payment. The best way to avoid any unpleasant situations is to actively check the statement each month and see whether the bills are paid in full and on time. A little precaution will help you in protecting your credit profile in the long run.
The best way to know exactly how the corporate credit card is impacting your credit score is to check your credit report. See whether an enquiry was reported to the bureau when the card was issued. Most likely if you filled the application form, your credit score would have taken a small hit due to a hard enquiry. Check whether the corporate credit card account shows up under the revolving accounts in the report. See if the monthly activity of the card usage is recorded in the report.
What is it that you can do to prevent any negative remarks relating to the corporate card to affect your report? If the corporate credit card is in your name it is in your best interest to ensure that the company makes the payments on time. If you do not have complete faith in the company’s system, you may ask the company if you can make the payments directly and later get it reimbursed from them. This gives you complete control to ensure that the bills are paid on time. But this method has a downside too. Your company may be late in reimbursing the amount to you. By charging all expenses to your own personal card, you may have a high utilization ratio which affects your score negatively.
Ultimately whatever option you choose, be clear about the liabilities you take over. Contact your HR department or the card issuer and get all your doubts clarified regarding what will (and what won’t) be reported to the bureaus. Exercise prudence to avoid any damage to your credit score.