Do I Really Need to Use a Separate Business Credit Card?

Do I Really Need to Use a Separate Business Credit Card?

Do I Really Need to Use a Separate Business Credit Card?

Using a credit card for business expenses can be a convenient way to get some extra time to pay off expenses, and can also make it possible to get rewards and benefits every time you swipe.

In general, though, it’s always a good idea to use a separate credit card for business expenses as you do for personal expenses. Here’s why.

Separating personal and business expenses

As the saying goes, you shouldn’t mix business with pleasure. While that might not be a universal truth, it does make sense when it comes to your expenses.

Using a separate credit card for your business and personal expenses is an essential tactic for all business owners, whether you’re just starting out or you’ve been in business for years. Here are some reasons you should consider making it a habit.

Fewer accounting headaches

Having an updated profit and loss statement is important in understanding how your business is doing. But when it comes to accounting for expenses, it can get complicated if you’re using the same credit card for business and personal purchases.

That’s especially the case if you use the card regularly. Even if you’re looking back a week later, it won’t be easy to discern which purchases were for your household and which were for your company.

By using a separate credit card, you don’t have to wonder.

Easier tax preparation

Tax time is already a season most business owners don’t look forward to, and mixing business and personal expenses on the same credit card can make it even less appealing.

One reason for that is that business owners are allowed to deduct credit card interest and fees on their tax returns, as long as they were incurred for the business. That means that if you paid either of those costs during the year and didn’t separate your expenses, you’d need to figure out how much interest and fees are attributable to your business versus your personal budget.

And if you make a mistake and get audited by the IRS, you may be on the hook for more taxes, plus interest and penalties.

You could lose your credit card

If you’re using a business credit card, your card agreement likely states that you agree to use the account for business purposes only. Using the card for personal expenses as well is in violation of the agreement and can be grounds for account closure.

That said, it is rare for this to happen. But if you state few expenses on your credit card application and then charge much more to the card every month, it could raise some red flags for your card’s issuer.

It might make getting financing more difficult down the road

As you grow your business over time, you’ll likely start looking for other ways to get capital for expansion. When working with commercial lenders, they typically like to look at your bank and credit card statements, as well as other financials, to get an idea of how you manage your business.

If they notice a lot of expenses that seem unrelated to the business, they may wonder about your ability to manage your business well and consider you a riskier borrower.

Does it need to be a business credit card?

There are several reasons you should consider getting a separate credit card for your business expenses, but it doesn’t necessarily have to be a business credit card.

There’s typically no clause in a personal credit card agreement that says you can’t use the account for business purposes. Also, using a personal credit card gives you access to certain protections that the federal government has yet to extend to business credit cards.

That said, there are a few things to consider before using a personal credit card for your business:

You’ll miss out on business-specific rewards and perks

It’s typically a good idea to get a credit card that offers rewards that fit your business’ spending profile, and if that’s a personal credit card, great. But you’ll have a hard time finding a personal credit card that offers bonus rewards on categories like office supply stores, advertising, shipping, and other business-related expenses.

Also, some business credit cards offer special perks that make it easier to manage your expenses.

You won’t build a business credit history

Business credit cards typically report to the commercial credit bureaus, and some even report your activity to the consumer credit bureaus. But with personal credit cards, it will only affect your personal credit score.

If you’re looking to build business credit, get a business credit card.

You’ll likely get a smaller credit limit

On average, business credit cards offer higher credit limits than personal credit cards, because businesses tend to spend more money than households. By using a personal credit card, you may get stuck with a lower credit limit than you need.

If you don’t spend a lot right now, that might not be a problem. But if you do, it may be better to look for a business card.

The bottom line

Separating your business and personal expenses is crucial to smart business management. But you don’t necessarily need to open a new credit card to do it. If you have more than one personal credit card, you could start using one for business expenses only.

If, however, you want to take advantage of the perks that business credit cards have to offer, take some time research top business credit cards and compare them to find the best one for your business.

This article was originally written on March 15, 2019 and updated on October 7, 2021.

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Ben Luthi

Ben Luthi is a personal finance and travel writer who loves helping consumers and business owners make better financial decisions. His work has appeared in several publications and websites, including U.S. News & World Report, USA Today, Marketwatch, Yahoo! Finance, and more.

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