Business Credit Cards vs. Personal Credit Cards: What’s the Difference?

Business Credit Cards vs. Personal Credit Cards: What’s the Difference?

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As a business owner, it’s critical that you separate your business expenses from your personal purchases. You don’t necessarily need to apply for a separate business credit card, though.

Business credit cards offer certain features tailored to business owners, but they also don’t have some of the legal protections you get with a personal credit card.

As you consider what type of credit card to use for your business, it’s important to know these differences and how they can affect you and your company.

6 differences to know about business and personal credit cards

Business owners can use either a business or personal credit card for their everyday operating expenses, but the right one for you depends on your goals and preferences. Here are six specific differences between the two card types to help you decide.

1. Eligibility

Anyone can apply for a personal credit card, but business credit cards typically require that you have a legitimate business to get approved. The card application will typically ask how long you’ve been in business and about your revenue and expenses.

That said, both business and personal credit cards typically require a personal credit check to get approved, even if you have an established business credit history. If you haven’t seen your business credit history or score, you can check it with Nav.

2. Rewards

Business credit cards tend to offer rewards programs that are focused more on common business expenses than everyday expenses like groceries, gas, and eating out.

The SimplyCash® Plus from American Express, for instance, offers bonus rewards on purchases from office supply stores and wireless telephone providers, as well as on select media advertising, shipping, computer software and hardware, and more.

Depending on your expenses, getting a business credit card that offers extra rewards on certain purchases could net you more rewards than if you were to use a personal credit card.

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3. Benefits

Some business credit cards offer special perks that are tailored to a business owner’s needs. American Express OPEN cards, for example, allow you to upload receipts to match your expenses, and sync all of your transactions with QuickBooks.

As you’re comparing credit cards, look beyond the rewards program to see if you can get more value from the card’s ancillary benefits.

4. Credit limits

Business owners tend to have more capital needs than consumers, and business credit cards accommodate that by offering higher credit limits.

Some business credit cards don’t have a credit limit at all, but these charge cards typically require that you pay off your balance in full each month.

Keep in mind, though, that business credit cards are best used for everyday operating expenses. If you need capital to finance equipment, inventory, or some other large expense, you may qualify for a lower interest rate with a small business loan or line of credit.

5. Credit reporting

Most major personal credit cards report your account activity to the three consumer credit bureaus, Experian, Equifax, and TransUnion.

This can be beneficial if you’re looking to improve your credit and use the card responsibly. But if you keep a high balance or miss a payment, it could do more harm than good.

Business credit cards, on the other hand, typically report to the commercial credit bureaus, including Equifax, Experian, and Dun & Bradstreet. This can help you establish a business credit history, which can help you get approved for better business loans and lines of credit in the future.

Some business credit card issuers, however, also report some or all of your account activity to the consumer credit bureaus.

For the most part, they report only if you’re delinquent. But some issuers, including Capital One and Discover, report business credit cards the same way they do personal cards. Make sure you know how your card will report before you apply.

Keep in mind that whether you choose a business or personal credit card, you’re personally on the hook to pay the bill if your business can’t.

Business credit cards require a personal guarantee (hence the personal credit check when you first apply), which supersedes any limited liability you might have with your business structure.

6. Legal protections

The Credit CARD Act of 2009 offers various protections to personal credit card holders, but they don’t apply if you have a business credit card.

This means that your APR could change overnight without any notice or you could get hit with a high penalty APR after just one missed payment.

Fortunately, most business credit card issuers extend some of the same consumer protections that the Credit CARD Act requires. But you’ll need to check the fine print to be sure.

Which option should you choose?

There’s no best credit card for everyone, so it’s important to understand what you want in a credit card before you apply.

If you already have more than one personal credit card, for example, and you want to avoid adding another card to your wallet, it may be worth it to stick with what you have.

Alternatively, if you’ve had your eye on a specific personal credit card and think it’d be a good fit for your business, go for it.

But if you want to avoid having your business credit card affect your personal credit, it may be better to apply for a business credit card that fits your business needs.

The same goes if you want to take advantage of rewards programs or other benefits that only business credit cards offer.

Whatever you do, consider making it a goal to keep your business and personal expenses separate. This not only helps with your accounting but will make your life a lot easier at tax time.

Ready to see your credit data and start building better business credit? Check Your Personal and Business Credit For Free (No Credit Card Required).

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2 responses to “Business Credit Cards vs. Personal Credit Cards: What’s the Difference?

  1. Hi I’m in a bit of a bind… My business partner made charges that I approved for our business. Problem is, it is my first business and i had to put them in my name. This animal, then cannot make his portion of payments, disappears and now I’m stuck with making payments that I cannot afford. I don’t want to file bankruptcy because I don’t want it to affect my personal financial situation. What can I do?

    1. I’m sorry to hear this Mike. It really boils down to a three options:

      1. Continue paying and trying to find a way to pay it off. It will be the most expensive option but will preserve your credit and protect your personal finances.

      2. Try to settle the debt for less than the full amount. Most issuers will not settle unless you fall behind so this option may hurt your personal credit. I’d suggest you read How Business Credit Cards Report to Personal Credit to understand whether it’s likely your issuer will report to your personal credit if you default. (Most do.)

      3. Talk with a bankruptcy attorney to determine whether that’s even an option. It may or may not be, but if the amount of debt is insurmountable you may want to at least have that information to make an informed decision.