Using a personal 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.
Is It Possible to Use a Personal Credit Card for Business?
The short answer is yes. It’s legal to swipe your personal credit card when paying for business expenses. Your vendors won’t check to make sure you’re using a business credit card, and credit card companies usually don’t analyze your statements to make sure you’re only using the card for business reasons.
However, we advise against using a personal credit card for business purposes for a number of reasons — mostly because there are so many benefits to dividing the two.
Benefits of 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 small business owners, whether you’re just starting out or you’ve been in business for years. Here are the most important reasons you should consider dividing up your expenses.
Tax prep will be more accurate
Tax time is a season most business owners don’t look forward to, but you can make your bookkeeping cleaner by separating business and personal expenses.
As a small business owner, you’re allowed to deduct business expenses on your tax return, as long as they were incurred for the business. But if you’re using a personal credit card for business and personal purchases, having a credit card statement showing both personal and business purchases makes it more difficult to remember what you bought for your business. Keeping all your business charges on their own card makes it clear what is a tax-deductible business expense and makes tax prep that much more straightforward.
Also, a word of caution: if you make a mistake on your tax return and get audited by the IRS, you may be on the hook for more taxes, plus interest and penalties.
LLCs keep more legal protection
Being designated an LLC or corporation protects the business owner’s personal assets better during a lawsuit. But to keep all of those legal protections, you have to maintain separate business and personal expenses. Combining the two can allow attorneys to “pierce the corporate veil,” or go after the owners’ personal assets, although this usually only happens in misconduct cases.
You’ll stay compliant
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 a 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.
Getting funding may be easier
As you grow your business over time, you’ll likely start looking for other ways to get capital for expansion like a business line of credit or a business loan. When working with commercial lenders, they typically like to look at your bank and credit card statements to see your business transactions, as well as other business finances, 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.
Things to Consider Before Using a Personal Credit Card for Business
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.
Personal credit card agreements typically don’t have a clause banning you from using 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. The Credit Card Accountability Responsibility and Disclosure Act (the Credit CARD Act) only offers consumer protections. Business credit cardholders aren’t legally guarded against things like interest rate hikes and outrageous fees.
That said, there are a few things to consider before using a personal credit card for your business:
You won’t build business credit
Business credit and your creditworthiness is the lifeblood of your small business — and you usually have to take steps to make sure you’re building it. One of those steps is opening a business credit card that reports to the commercial credit reporting agencies. This means applying for a small business credit card that notifies one or more of the business credit bureaus when you pay your bill on time, as well as when you’re late. Just like with a personal credit score, these payments can increase or decrease your business credit scores and create a business credit history.
Spending on a consumer credit card won’t build business credit. And business credit is vital if you want your business to grow. If you’re looking to build business credit, consider getting a business credit card.
You may miss out on business-specific rewards
Like consumer credit cards, business credit cards often have welcome offers and bonus rewards. Using a business credit card to pay for your monthly small business expenses can allow you to reach the spending minimum quickly so you can take full advantage of the welcome offer.
Cardholders can also get membership rewards aimed at business purchases. The exact rewards depend on the card. But you may see that instead of cash back or points on dining and entertainment, you’ll get rewards back for purchases at gas stations, office supplies stores, internet services, or for advertising costs — or the things your business needs to thrive. You might as well get rewards for that spending.
Also, some business credit cards offer special perks that make it easier to manage your expenses.
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 spending limit than you need, which may impede your business’s cash flow.
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 credit card.
You can’t get employee cards
With a business credit card, you can give out company credit cards to your employees that aren’t an option using a personal credit card. Employee cards can make it easier for your staff to buy the products and inventory they need when they need them, and allows you to track the spending in one place. These cards can also simplify the process for things like business travel. Plus, some employees aren’t comfortable using their own money for business expenses and submitting them for reimbursement later.
Most business credit cards don’t charge for additional employee cards. If you are using a personal credit card for business, however, you can add an employee by adding them as an authorized user on your account. But you cannot add your business to your personal credit card as its own authorized user.
How to Find the Best Credit Card for Your Business
When looking through credit card offers, search for low interest rates, an affordable annual fee, and a rewards program that suits your type of business.
Look for features with the different credit card issuers like:
- Annual fee
- Intro APR
- Welcome offer on account opening
- Rewards credit cards with travel rewards, bonus points, or cash back rewards
- Bonus categories for eligible purchases that you already have business spending in
- Foreign transaction fees
- Free employee cards
- Type of card (Visa, Mastercard, Discover, American Express)
Nav makes it easy to find the right business credit card for your business. We gather all of our partner’s business credit cards in one place so you can see what you’re most likely to qualify for. Use Nav to see your personalized list of cards that are best suited to your specific needs and qualifications.
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.
However, if you want to take advantage of the perks that business credit cards have to offer, work with Nav to find the best business credit cards and compare them to find the right options for your business. Using Nav is also the best way to find the right small business loans for you since you see what you can qualify for — before you apply.
This article was originally written on March 15, 2019 and updated on September 11, 2023.