Here at Fundera, we talk a lot about why every entrepreneur needs a business credit card in their back pocket.
But as you sort through every business credit and charge card on the market—searching for low APRs, cash back rewards, or no annual fees—you might be asking yourself: “What makes a business credit card different than the personal credit cards I already own?”
Great question. Personal and business credit cards do have a fair amount in common. That said, you need to know the key differences between the two types of plastic.
Here’s what you need to know about the question of a business credit card vs. personal credit card before signing on the dotted line.
Business Credit Card vs. Personal Credit Card: What’s the Difference?
When you’re doing research on the business credit card vs. personal credit card debate, you’ll find that the two types of credit cards are similar in many ways.
Both work just as you’ve always understood credit cards to work. Business and personal credit card issuers extend you a credit line. With this credit line, you can make purchases, or, if allowed, balance transfers or cash advances—provided that you pay back the amount you borrowed in the future.
And when you make purchases on your business or personal credit card, depending on the card, you could earn cash back, bonus points, or travel rewards based on the kind of credit card you have.
But with that being said, you need to know about a few key differences between the two types of cards.
Here are the six things you need to know when making the business credit card vs. personal credit card decision:
1. Business credit cards have rewards geared toward businesses.
This is obvious, but it’s worth making clear: Business credit cards are designed with businesses in mind.
That doesn’t mean that you can’t apply for a business credit card without a formal business with a tax ID number. Consumers can still apply for business credit cards as a sole proprietorship or with a Social Security number.
When it comes to the choice of a business credit card vs. personal credit card, a business credit card often will offer cash back and bonus rewards tailored for a business. That means that, most of the time, you get the biggest value from business credit cards by spending in categories that businesses usually spend on—office supplies, computer hardware and software, phone services, etc.
Personal credit cards, on the other hand, often have rewards that apply to consumer spending categories—restaurants, grocery shopping, travel, and so on.
For this reason, using a business credit card for the various business expenses you need to cover makes total sense.
2. Small businesses might not enjoy the same consumer protections.
Business credit cards aren’t monitored and controlled as closely as personal credit cards are.
Specifically, consumer protection laws—like the Credit Card Act of 2009—usually don’t apply to your business through a business credit card. This means that your business credit card’s APR could be subject to change without you knowing it. You could also incur much higher late fees if you pay late. While this doesn’t happen often, it could have a big impact on what you pay in full. And this is especially true if you often carry a balance.
However, most business credit card issuers extend the same consumer protection laws to business credit card holders as a courtesy—so you shouldn’t have to worry about it. But it’s important to note that this isn’t always the case. Be sure to read the fine print on your cardholder’s agreement before you sign up.
3. Business credit limits are usually higher.
Applicants often qualify for a higher credit limit with a business credit card than they would receive with a personal credit card. This is mainly because businesses tend to both make more money and spend more money than consumers do.
If you’re choosing between using a business credit card vs. personal credit card, you’ve got 2 reasons why you might want to go the business-route:
First, the higher limit on the business credit card helps you cover those expensive purchases you need to make for your business—that’s a no-brainer.
But second, having a higher credit limit on your business credit card might actually help your business credit score. The business credit-reporting bureaus—Equifax and Experian (and not Dun & Bradstreet)—use your credit card utilization to determine your business credit score. This means that a higher credit limit on a business credit card could raise your total available credit line. That will make it easier to hit the credit utilization sweet spot—under 30%.
4. Business credit cards affect business credit—and sometimes personal credit, too.
Your borrowing behavior with your personal credit card will affect your personal credit report. That all adds up.
Your behavior with your business credit card, on the other hand, will show up on your business credit report. But you should absolutely be aware that your business credit card can affect your personal credit score, too.
Most of the time, you need to secure a business credit card with a personal guarantee. This means that you’re personally liable for your business’s debts if your business cannot make its payments.
Because of this, most credit card issuers will consider your personal credit score when deciding how much credit to extend to you on your business credit card. With all these factors in place, it’s no surprise that your business credit score and your personal credit score are on the line when you have a business credit card.
A couple of different business credit card issuers—American Express and Capital One—report business credit card activity to both personal and business credit bureaus. Chase, on the other hand, reports only to business credit bureaus in most cases. If you fall behind on your payments on a business credit card, only then would Chase report to the business credit bureaus. Check in to see how your credit card issuer reports your borrowing behavior. If you’re not sure, just reach out to the issuer to find out.
If you need to build business credit, spending responsibly with a business credit card is a great way to do so. Business credit history is incredibly important for securing small business loans. So if you’re new to the world of small business ownership and don’t have any business credit history to your name, getting a business credit card to build business credit is a must.
5. Balance payments are applied differently.
Regarding the differences between a business credit card vs. personal credit card, here’s another important detail to note:
The payments you make on your credit card balance are applied differently.
Say you’re paying different interest rates on the same account. If that’s on a personal card, the issuer legally has to apply the payment to the higher or highest rate first. This will drive what you pay down in interest. But that’s not the case with a business credit card. With a business credit card, the issuer could apply your payment to the balance that has the lowest interest balance, leaving the most expensive part of your debt racking up interest charges.
6. Business credit cards can come with additional perks for business owners.
Some business credit cards come with more added features than personal credit cards. For example, your business credit card could come with a pretty sophisticated expense management tools to help you stay on top of your business expenses.
The Bottom Line
When choosing between a business credit card vs. personal credit card, it’s important you know the six major differences between the two options. Being fully aware of the actual differences will help you choose what you need for your business.
There are a few circumstances in which using a personal credit card for business matters is okay. But in general, you should separate your business and personal expenses by keeping all purchases for your company on a business credit card. Plus, you’re building your business credit score along the way—which will be important for your business down the line.
If you’ve decided on using a business credit card, your next step is finding one that fits your business’s needs!