If you’re like most American adults, you’ve used personal credit cards and you may even have several of them. As a business owner, you might have opened a business credit card account or two as well. If you’re just just starting a business, though, you may be trying to decide whether it’s time to get a business credit card.
While the pieces of plastic you carry in your wallet may look similar, personal credit cards and business credit cards have some key differences.
There are several key differences between personal and business credit cards that you’ll want to take into account when making a decision about which type of card to use:
- How they impact your personal credit
- Whether they help build business credit
- Qualifications for each type of card
- Differences in cardholder protections
- Rewards, perks and benefits
Before we dive into these differences, let’s make sure we’re clear on the basics.
Personal Credit Cards
Personal credit cards are issued to individuals for personal use. When you get a personal American Express, Discover, Mastercard or Visa credit card it’s designed to be used for personal household purchases. While no one is monitoring each charge made on the card, the cardholder agreement likely spells out how the card can be used.
The cardholder is liable for authorized purchases, which means they are responsible for paying for purchases they have made, as well as anyone they allowed to use the card, whether that’s a friend or family member.
There is an enormous variety of personal cards available, for all ranges of creditworthiness. If you have a limited credit history or bad credit you can likely find a secured card or credit builder card. If you have excellent credit, you can find premium cards with higher limits and excellent rewards.
Some cards carry no annual fee, while others may carry high annual fees but a huge menu of perks.
Business Credit Cards
Business credit cards are designed to be used for business expenses, rather than personal or household purchases. Many issuers will issue these cards to brand new businesses (including freelancers or independent contractors) as well as established businesses. However, there are a few card issuers that will only issue corporate cards or business cards to a business entity such as an LLC or corporation.
Business credit cards typically (though not always) require a personal guarantee that means the cardholder is responsible for any purchases made with the card, either by themselves or by anyone who they authorized to use the card.
Similar to personal credit cards, there are lots of cards available. However, there aren’t as many business credit cards aimed at business owners with poor credit as there are on the consumer side.
Personal Cards vs. Business Cards
Let’s talk about some specific differences between these cards:
1. Protect Personal Credit
Many business credit card issuers will not report your business account to consumer credit bureaus, unless you default on your payments. A business credit card that doesn’t appear on your personal credit won’t help you build personal credit. But it may help your credit in a different way.
Around 30% of your personal credit scores (like VantageScore or FICO scores) are largely based upon your credit utilization ratio. Although it may sound complicated, that’s really just a simple way of explaining how much of your available credit limit you’re using at the time your account is reported to the credit bureaus. (Utilization compares the balance to the credit limit, as reported to the credit bureau.)
Since research has shown that high utilization is associated with higher risk, you may see your credit scores go down as your utilization goes up. (Here’s a real-life example of how credit utilization can work.)
So what does this have to do with a business credit card? Let’s say you use your business credit card to finance large purchases for your company when cash flow is tight. Or let’s say you take advantage of a 0% intro APR to finance your startup business. If that purchase goes on a personal credit card (or a business credit card that shows up on your personal credit) it could impact your debt utilization. If you use a business credit card that doesn’t report to personal credit, it won’t.
Of course, you shouldn’t assume that your business card won’t appear on your personal credit reports. A few small business credit card issuers report activity to both the consumer and commercial credit bureaus. Looking for a list of business credit card issuers who generally don’t report monthly account activity to the three personal credit bureaus? Here’s a guide to which business credit cards report to personal credit.
White you may be able to get a business credit card that doesn’t report activity to business credit, most will check your personal credit when you apply. This will create a credit inquiry on the personal credit report that was checked. Inquiries may lower your scores a few points, though the effect is generally short-lived.
Also keep in mind that many business credit card issuers will require you to provide a personal guarantee when you open a new account. A personal guarantee means that if your business is unable to repay its debt, you could be on the hook for the bill personally.
2. Build Business Credit
Building a positive credit history is important, both for your personal credit and your business credit. When you establish good credit, you can often qualify for better interest rates and terms on future loan applications. Good credit can also save you money in ways you might not expect, such as lower insurance premiums (both personally and for your company).
Most business credit cards report to at least one of the major business credit reporting agencies. Here’s how to find business credit cards that can help build business credit.
An on-time payment history can be a great way to establish business credit, which in turn may help when you apply for small business loans or other benefits like business insurance.
Paying on time is crucial here as payment history is the most important factor when it comes to establishing good business credit scores. It’s also worth noting that utilization isn’t always as important when it comes to building business scores. Dun & Bradstreet’s PAYDEX score, for example, doesn’t look at utilization at all. Some business scores created by Experian and Equifax do consider credit utilization, but it doesn’t count as much as it does when it comes to personal credit cards.
Of course, whenever possible, it’s still smart to pay your business card balances off in full each month, unless you’re using a low-rate or 0% card to finance purchases for a set period of time. It will lower your interest costs and some lenders will consider your debt when you apply for a small business loan.
3. Qualifying for Business and Personal Cards
Both personal and business credit card applications typically require you to provide your Social Security number and will check personal credit.
If you have bad credit, you may need to get a card specifically designed to help build or rebuild credit. These may include secured credit cards, or cards that require you to preload funds into a bank account to cover future purchases.
Most small business credit cards require good or excellent personal credit to qualify but few require good business credit. And many will accept income from all sources, including personal income. That means these cards can be available to brand new businesses, including sole proprietors. In fact, business credit cards are one of the more popular forms of startup financing for new businesses due to their availability.
There are a few business credit cards that don’t check personal credit. Typically these require that your business have strong revenues and operates as an LLC or corporation, rather than as a sole proprietorship.
4. Cardholder Protections
One of the biggest differences between personal and business credit cards are the legal protections you can enjoy as a card holder. As a consumer, you are protected by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (aka the CARD Act) — a law enacted to protect consumers from unfair and predatory credit card practices.
Unfortunately, CARD Act protections do not extend to business credit card accounts. This means that if you opt to use a business credit card instead of a personal account, you could be vulnerable to the following risks:
- Your interest rate could be raised without advance notice. There is no 45-day advance notice required for interest rate hikes on business credit cards.
- You might have less time to make your payments before interest is added. A 21-day grace period isn’t required on business credit card accounts.
- Universal default is on the table. This means if you make a mistake (like a late payment) on an unrelated account on your credit report, your business credit card issuer could hike your interest rate up to the default rate on your account. To add insult to injury, the penalty rate could be applied retroactively to your existing account balance.
Here’s the good news. Even though business credit card issuers aren’t obligated to adhere to CARD Act requirements, many of them do so anyway as a matter of customer service. However almost every business credit card issuer reserves the right to raise your interest rate if you make a late payment.
The new higher rate may apply to outstanding balances as well as new purchases. That’s why it’s key to always play your business credit card on time, even if you just make the minimum payment. (Setting up automatic payments is a great way to avoid late payments.)
5. Rewards and Benefits
Card issuers love business card customers, because they tend to spend more on business-related purchases. And more spending equals more revenue in the form of swipe fees and interest when they carry a balance. Premium cards may also have higher annual fees.
Rewards and perks on business credit cards are often tailored to business owners. For example, an issuer may offer higher cash back rewards for office supplies. Reward programs and welcome bonuses tend to be more lucrative on business credit cards since issuers want to attract those types of customers.
Business credit cards often have higher spending limits as well. Free employee cards make it easy to earn more rewards, but are also designed to encourage businesses to spend more as well.
Pros and Cons of Personal and Business Credit Cards
Let’s look at the pros and cons of each of these types of credit cards:
Personal Credit Cards
- Wide variety of credit building cards available
- Can help build personal credit with all three bureaus
- No business information required when applying
- Strong consumer protections
- All activity affects personal credit, good or bad
- Not designed for business use
- Rewards and perks focused on consumers, not business
- May result in commingling business and personal finances
Business Credit Cards
- Some do not appear on personal credit
- Most can help build business credit
- Rich rewards designed for SMBs
- Few business cards for bad credit available
- Most don’t help build personal credit
- No CARD Act protections
Why Consider Using A Personal Credit Card Over A Business Credit Card And Vice Versa
As a business owner, there are benefits to having both personal and business credit card accounts. Having both types of accounts can help you to simplify accounting by keeping personal and business expenses separate. Both types of cards may offer valuable rewards programs as well.
Some small business owners find it useful to get two cards of the same type to earn rewards. For example, if you frequently fly a specific airline, you might get both the consumer version of their travel reward card as well as the business version. That way you earn miles on both, which are often credited to the same account. You’ll fly free faster that way.
If you’re thinking about using a personal credit card for your business, keep in mind that your cardholder agreement may prohibit using your card that way. Again, no one is going to scrutinize each purchase to determine whether you used it for a personal expense or business expense, but if you can’t repay the balance, the fact that you used the card that way could become an issue.
Whatever you do, don’t mix business and personal purchases on the same card. That can create a bookkeeping nightmare, and you may lose out on the ability to deduct interest and/or fees on a card used strictly for business purposes.
And if you have formed a business entity such as an LLC or corporation, it’s essential that you use a business credit card for business purchases. Commingling personal finances and business finances can jeopardize the asset protection benefits of your business entity.
Best Business Credit Cards
You have a variety of cards to choose from as a small business owner. You’ll want to pick the card that offers the right combination of cost, perks and other benefits.
Here are some of the most popular business credit cards. Compare business credit cards based on your qualification with Nav. Get started here.
Frequently Asked Questions About Personal vs Business Credit Cards
Which Is Better: A Personal Or Business Credit Card?
You can find great credit cards of both types. It’s best practice to use personal credit cards for personal purchases and business credit cards for business purchases.
What Are 3 Disadvantages Of Having A Personal Credit Card?
Three potential disadvantages of having a personal credit card you use for business purchases include:
- Business purchases and business debt may impact your personal credit
- You may lose tax deductibility of interest and fees if you mix personal and business purchases on the same card
- You won’t build business credit with a personal credit card
How To Get A Business Credit Card With Bad Personal Credit
Most business credit cards require good or excellent credit. If you don’t qualify you may need to consider a business credit card for bad credit, such as a secured card. Again, Nav can help you compare cards based on your qualifications.
This article was originally written on March 14, 2019 and updated on April 10, 2023.