For most people asking this question, the answer is yes. A business credit card account can help separate business from personal finances, but when it comes to credit reports there can be some overlap.
It is possible to apply for a credit card with an EIN, but if you don’t already have credit established for your business, you may get denied or end up with a credit inquiry on your personal credit reports. Here’s why.
The Federal EIN
EIN stands for Employer Identification Number. It’s a tax I.D. number similar to the social security number (SSN). Its purpose is tax administration. Nothing more. It is the same number of digits as a SSN, and for sole proprietors, the EIN leads directly to the taxpayer. For corporations, the EIN is connected to the business.
Many individuals obtain an EIN as household employers, for the purpose of paying nannies, housekeepers and other household workers. Having an EIN allows you to mask your social security number on paperwork that employees and clients can see.
Anyone can get an EIN, and it’s free. The IRS walks applicants through the process here. The IRS does not require a business license or other business related paperwork to get an EIN. Issuance of an EIN does not result in the creation of a business credit file.
The EIN And Your Social Security Number
Initially, an applicant for an EIN must provide his or her social security number. Even for corporations, the IRS’s Form SS4 (for requesting issuance of a new EIN) clearly asks for the name and social security number (or ITIN or EIN) of the responsible party.
Later on, subsequent EIN applications for different businesses allow listing of a prior EIN as the responsible party, but ultimately all EINs lead back to a person with a social or ITIN (ITINs are tax I.D. numbers for people who are not eligible for social security number).
It’s possible to mask individuals’ identities using complicated corporation design and fancy legal help, but that is another topic. We are talking about average Americans who want to separate business from personal credit but probably don’t have a legal team at their disposal.
Applying For Business Credit
The credit card issuer has to have something on which to base any new account decision. If a company has an already established business credit file with one or more credit reporting agencies, the card issuer can pull its credit and make a decision. Business credit reporting agencies include Dun & Bradstreet, Experian, Equifax, TransUnion and others.
Note that opening a business credit card does not result in the creation of a business credit file. For that, a business must have at least one tradeline reported, and be “found,” for example via a business telephone listing. If you’re in a hurry, Dun & Bradstreet offers a paid service to help you build a file.
Some business credit card applications ask for an EIN; others go straight to the owner’s SSN. On applications that ask for an SSN, it’s often easy to substitute the EIN by simply plugging the numbers in. Some people do this to try to keep their social security numbers completely private and separate from all business transactions.
Until the business has a well-established credit file, entering the EIN won’t work. Even if an applicant offers an EIN to the credit card issuer in place of the social, in the world of banking, they are virtually one and the same. The EIN leads straight to the social security number of the responsible party, and that’s whose credit they’ll pull.
Yes, It’s A Hard Inquiry On Your Credit
Whenever an application for credit is made, the result is a hard inquiry. That’s true whether the creditor sees the applicant as a business or a person. Anyone can apply for a business credit card using an EIN, but if the company doesn’t have a credit file, the hard inquiry can only go against the applicant’s personal credit file and likewise will cause an associated small dip in credit score.
In other words, if no business credit file is yet established, the issuer has no data to review. The application will either be denied for lack of data to analyze, or the creditor will pull the applicant’s personal credit and issue a decision based on that. Some creditors will first ask for a personal guarantee and authorization for the credit check. Others won’t (the authorization is apparently built into the application).
Case in point: I applied for the (now discontinued) American Express Costco card using an EIN, without revealing my social security number at all during the application process. I was instantly approved. Hard inquiry on my personal credit file: yes.
A month later I applied for a commercial account at Staples, again without revealing my social security number. They responded that my business credit file was insufficient to render a decision, but gave me the option of offering a personal guarantee. I provided my SSN. Hard inquiry on my personal credit file: yes.
Interestingly, most business cards don’t report positive account data to the responsible party’s personal credit file. Other than the initial inquiry, once the account is open the consumer may not see it again in the context of credit. The credit limit and charges won’t count for or against the utilization ratio, and the age of the account won’t be used when calculating the average account age.
That said, if the account goes into default, the responsible party is personally liable and the negative payment behavior will show up on that person’s consumer credit file. Each creditor sets its own guidelines for this reporting. For the American Express Costco card, derogatory accounts were reported when 120 or more days late in paying off any charges other than the membership fee.
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