Business Credit Card Vs. Business Debit Card: Which Is the Better Choice?

Business Credit Card Vs. Business Debit Card: Which Is the Better Choice?

Business Credit Card Vs. Business Debit Card: Which Is the Better Choice?

There’s nothing like the convenience of plastic when you need to make a purchase. This is true both in your personal life and for your business as well.

Yet not all plastic payment options are the same, and it’s important to understand the differences. While your business debit card and business credit card may look quite similar on the outside, they offer different benefits and rewards.

I’m going to spoil the ending for you now. A business credit card is, hands down, the better choice nine out of ten times.

Here are three reasons why you should typically use your business credit card for purchases and leave the company debit card in your wallet.

1. Business Credit Cards Offer Better Fraud Protection

Credit and debit card fraud occur far too frequently, and there’s no sign that criminals are slowing down. According to data from FICO, the number of compromised debit cards at ATM and merchant card readers increased by 10 percent in 2017.

As far as payment methods go, both credit cards and debit cards are vulnerable to fraud. The difference between the two card types lies not in their vulnerability, but in the liability you face if your card is compromised.

The Electronic Funds and Transactions Act (EFTA) can limit your liability for fraudulent debit transactions to between $50-$500, but only for phony charges made on a personal account. The EFTA doesn’t apply to business debit cards.

So, if a thief uses your debit card without your permission and you don’t report it in a timely fashion, there’s a chance your business could be on the hook for the fraudulent charges. (Note: many debit card issuers voluntarily offer zero liability protection, even for businesses, but there may be restrictions.)

With credit card purchases, on the other hand, Regulation Z (primarily a consumer protection law) may limit your liability in the event your small business credit card is used without your permission. Under Reg Z, if your small business credit card is lost or stolen, you can’t be held responsible for more than $50 of the unauthorized use. If you have a corporate card or issue authorized user status to 10 or more employees, however, these protections might not apply.

Even in your personal life, credit cards offer you better fraud protections than debit cards, thanks to these consumer-friendly liability limits.

2. Business Credit Cards Offer Better Rewards

Another reason why you may want to consider using a credit card over a debit card for your business is the fact that a credit card can help you earn valuable rewards and cash back opportunities.

Most likely your business has certain expenses it has to cover every month. If you’re already purchasing office supplies or paying for monthly services of any kind, why not earn some extra rewards on money you’re already spending?

In addition to standard rewards, many business credit cards offer attractive sign up bonuses to entice new customers. These sign up bonuses might be cash back opportunities or bonus points that can be redeemed for travel or other rewards.

If you want to use a business credit card to take advantage of rewards opportunities, just remember the following:

  • You should apply for business credit cards based upon your likelihood of qualifying. Different cards feature different qualification requirements. If a business credit card requires excellent business or personal credit and you know your credit needs a little work, you should apply for an account you’re more likely to receive instead – even if the rewards aren’t as sweet.To get matched to the best offers available, based on your business credit, you can sign up for a free account with Nav.
  • Don’t make unnecessary purchases to earn rewards. It’s fine to get rewarded for the purchases you’re already making; yet spending extra on your account in an effort to earn rewards is dangerous. Plus, if you charge more than you can afford to pay off in a given month, the interest charged on your purchases can financially offset any benefits you receive in the form of rewards.

3. Business Credit Cards Offer Better Credit-Building Potential

I’ve saved the best for last. The biggest benefit of using a credit card over a debit card for your business is credit-building potential. When you open a business credit card and manage it properly (e.g. on-time payments and low credit utilization), it might help to build better business credit scores over time.

Good business credit is important for the same reasons good personal credit is important – it can give you better access to financing and help you to save money with lower interest rates and better terms from lenders. Additionally, good business credit can save you money on insurance premiums and can even make your company more attractive if you ever decide to sell it down the road.

Keep in mind, not all business credit cards report to the three major business credit bureaus (Dun & Bradstreet, Equifax, and Experian). So, they may not help you build business credit equally. You can always ask a card issuer which commercial credit bureau it reports to before you apply, and here’s a helpful guide from Nav.

The Bottom Line

You need some type of card to use for business purchases. Instead of using a business debit card or, worse, a personal card to cover company expenses, opening a business credit card is the better option.

Just remember to manage your business credit card properly. Since you’ll probably have to sign a personal guarantee on the account, abusing a business credit card could potentially put the health of your business and personal credit on the line.

This article was originally written on March 27, 2019 and updated on October 21, 2020.

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