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There are advantages to using an Employer Identification Number (EIN) when applying for a business credit card. Business owners can keep their personal finances separate from those of the business and prevent negative activities from being reflected on their personal credit history. Small business owners, however, will likely have a hard time finding a small business credit card that accepts an EIN over a Social Security Number (SSN). Most small business cards require an SSN in order to protect lenders from extravagant risks.
What is an EIN?
An EIN is a nine-digit tax identification number that sole proprietors, small business owners, corporations, and other entities can apply for and receive from the IRS. Any business owner can apply for an EIN online. Businesses must be located in the United States or in United States territory. An SSN or other tax identifier is required to apply for an EIN, but once assigned, EINs can often be used on credit or loan applications in place of SSNs.
Benefits of using an EIN when applying for a business credit card
One of the main benefits of using an EIN instead of an SSN on a business card app is keeping business and personal finances separate. Not only does this separate tax details, but business owners can separate credit history as well. Most business cards report activity to commercial credit bureaus that maintain a record of the cardholder’s business credit. But not all of them report to consumer credit bureaus, which means that not every issue with a cardholder’s business accounts will necessarily affect personal credit. To find out if your business credit card payment history is being reported to business or personal credit bureaus, contact your card issuer.
SSNs typically provide card issuers with a personal guarantee that the cardholder can be held liable for any business card debt. Using an EIN will place the business itself as the responsible entity, not the cardholder. Appropriate filing as a corporation, LLC, or other entity with legal liability protections will help to avoid personal liability for debts incurred. Consult a lawyer regarding your specific liability in all cases.
Applying for a business card with an EIN also prevents a person’s personal credit history from affecting their eligibility. When business card applications require SSNs, they use them to analyze the applicant’s personal credit score and spending. This could affect the applicant’s credit limit or reward potential.
Can a small business owner apply for a small business credit card with just their EIN?
The short answer is no. In most cases, it’s not possible for a small business owner to ignore the SSN field on an app and replace it with an EIN and see an approval.
Credit card issuers protect themselves by requiring the business owner to provide personal collateral for debts. If the business owner cannot repay debts to the card issuer, the owner is personally liable. Issuers also use SSNs to inquire about the applicant’s personal credit by performing a credit check.
While there are a few business credit cards that allow applicants to use an EIN instead of an SSN, small business owners are generally not eligible as these businesses often lack credit and track record. credit.
Small businesses are generally considered to be more susceptible to bankruptcy, making liability protection more important for issuers. Established companies usually have enough assets, history, and income to console nervous lenders. Corporate cards are among the only types of business cards that allow applicants to use an EIN instead of an SSN.
Alternatives for Small Business Owners
If the goal is to separate business and personal finance and credit, there are alternatives for small business owners.
Small business owners can apply for a business card that does not relate to the consumer credit bureaus. For example, Bank of America small business credit cards are not reported to consumer credit bureaus unless you have a negative issue such as late payment. Issuers will likely still need an SSN in the application to determine eligibility, which will trigger a firm credit investigation. Lenders will also require a cardholder agreement and personal collateral.
Small business owners with low personal credit can avoid the headache of fear of my will approval by requesting a secure business card. Secure business cards give small business owners a head start by creating business credit and earning rewards with little risk. There are even secure cards that don’t require an SSN.
For example, the Wells Fargo Business Secure Credit Card* The card allows applicants to use an EIN instead of an SSN. Secure cards require a deposit that the cardholder can eventually recover in full after paying the balance and closing the account.
It will be difficult for small business owners and sole proprietors to find a credit card that does not require an SSN when applying. Card issuers want to protect themselves by asking a cardholder to provide a personal guarantee.
When looking for alternatives, always read a card’s terms and conditions before applying to understand the liability and credit standards you will be signing up for. Call the sender to ask questions if something is not clear, but ask for answers in writing.
If it’s important to keep business and personal expenses separate, find a card that doesn’t pay consumer credit bureaus. If low personal credit can affect eligibility for a small business card, consider applying for a secured card to get positive business credit.