Using a Business Credit Card for Personal Use: The Pros and Cons

Updated on July 21, 2020
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For the typical corporate employee, there tends to be a pretty strict delineation between work and personal life. But among entrepreneurs, the line between business and personal can be a little less clear. It’s no wonder, then, that a large number of small business owners struggle to maintain a clear separation between their company and personal finances. The problem is particularly pronounced when it comes to using a business credit card for personal use.

The ease of using a credit card makes it tempting to charge a variety of different expenses to the plastic. After all, with most cards, the more you use it, the more you can rack up valuable rewards points and cash back. But, charging a business credit card for personal use can make bookkeeping difficult, and in some cases, even land you in hot water legally. Here, we’ll go over the pros and cons of using a business credit card for personal use.

The Cardinal Rule: Keep Personal and Business Expenses Separate

When you obtain a business credit card, you typically have to sign a cardholder agreement in which you agree not to use the business credit card for personal use, including family or household expenses. Periodically, card issuers will also send emails to their customers reminding them that card is exclusively for business use. If you charge the business credit card for personal use, you’re technically in violation of your cardholder agreement, and the issuer could decide to cancel your card.

Despite these provisos, business credit card issuers aren’t going through your transactions with a fine-tooth comb each month to check whether each charge is a personal or business expense. The truth is that it would be difficult for them to know in many cases. You’re not likely to get in trouble or get your card canceled if you accidentally charge your grocery purchase to your business credit card.

That said, we recommend that you don’t swipe a business credit card for personal use. Trying to splice through what’s business and what’s personal within the same credit card statement month after month will be stressful and time-consuming—and it’s an easy recipe for mistakes in your business bookkeeping and tax and legal problems down the line. But beyond these logistical reasons, intermixing your business and personal finances can also create many other hardships for your business’s long-term financial potential.

Here’s more on the pros and cons of using your business credit card for personal use.

Pros of Using Your Business Credit Card for Personal Use

There are a few perks of swiping a business credit card for personal use. Small business owners sometimes put personal expenses on a business credit card for increased rewards opportunities, higher credit limits, and fatter welcome bonuses.

Using business credit cards can also protect your personal credit score. Most business card issuers—including Chase, Amex, and Bank of America credit cards—don’t report business credit card activity to the personal credit bureaus, unless you’re delinquent on the account. The activity only shows up on your business credit report. So if you put all your spend on a business credit card, there won’t be any negative impact on your personal credit rating.

To sum up, here are the pros of using a business credit card for personal use:

  • Higher credit limit
  • Higher rewards points and cash back
  • Bigger welcome bonuses
  • Protect your personal credit score

Although you might rack up some extra hotel points or airline miles, the disadvantages of using a business credit card for personal use almost always outweigh the advantages.

Cons of Using a Business Credit Card for Personal Use

There are multiple disadvantages to charging a business credit card for personal use—particularly when that may involve combining business and personal spending within the same account.

Here are the cons of using a business credit card for personal use:

1. Organizing your taxes will be more complicated, increasing your chance of error and audit.

When the time comes to file quarterly and end-of-year taxes for your business, any capable accountant can advise you on a multitude of potential savings in the form of deductible expenses. The tax code isn’t entirely clear in this area, but one thing is clear: In order to deduct an expense, the expense must be “ordinary and necessary.”[1] That means it must be necessary for your business and take place in the ordinary course of business.

If you’ve used a business credit card for personal use, you or your accountant will spend far more time trying to organize your taxes and find valid deductions. And if you do make the mistake of drastically overstating your deductions, you could put your business at risk for an IRS audit, which will cost far more in time and operational distraction than you can possibly save.

2. Overlapping personal and business expenses can impact your credit.

As a small business owner, you hold the responsibility of building up and maintaining a positive credit rating both in your personal life and for your business. Your personal credit rating impacts every aspect of your financial life, while your business’s credit rating is a further demonstration of your ability to manage financial commitments in a business setting.

Some card issuers, Capital One being the primary one, report business credit card activity to the personal credit bureaus. If you have a card of that type, your personal credit could take a hit from too much business credit card use.

3. Mixing personal and business finances hurts your ability to get a business loan.

In the long run, your business and personal credit card spending impacts far more than just the line items and numbers on your credit reports. If at any point you decide to expand your business through financing from a business loan, you will experience firsthand the true impact of mixing business and personal expenses and how this affects your credit.

As lenders determine whether and at what interest rate to fund your business loan, they will evaluate your personal and business credit reports plus your previous year’s bank statements, balance sheets, profit and loss statements, cash flow statements, and even tax returns. Each one of these documents has the potential to be negatively impacted by mixing personal and business finances, causing discrepancies or evidence of poor expense management that may lead a lender to deny your application.

4. Commingling personal and business assets can land you in legal trouble.

If your business is structured as a corporation or limited liability company, then you’re not personally liable for business debts or obligations. If someone sues your company, they can only recover out of the company’s assets, not out of your personal assets. However, if you commingle personal and business funds, there’s a risk that a court will “pierce the veil.” This opens up your personal assets to legal exposure. By separating business and personal finances, you can preserve limited liability.

5. You don’t have the same protections as consumer credit cards.

The last reason not to use business credit cards for personal use is that you lack the protections that come with consumer credit cards. Consumer credit cards are regulated primarily by the 2009 Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act). Under this law, among other things, issuers can hike interest rates and charge fees only in limited circumstances and must give consumers clearer notification of payment due dates. These types of protections aren’t available for business credit cards.

Tips for Separating Your Business and Personal Finances

To avoid using a business card for personal use, follow these five tips to make sure that line in the sand remains clear.

1. Write a list of what qualifies as a business expense.

When we’re in the moment, it’s all too easy for the desire to get what we want right now to cloud our judgment about what qualifies as a personal or business expense. Whether that’s a shiny new computer accessory or an extra round of drinks with a friend, our brains trick us into saying, “It’s for the business!” Or worse: “It’s a tax write-off!”

And before you know it, all those little impulsive expenses add up into a mountain of costs that can sink your business.

To avoid impulse purchasing, write out a list in advance of what does and does not count as a business expense—particularly when you’re in a social setting. For example, all dinners while you’re at a conference probably count as business expenses. That dinner last week with your old high school classmate, however? Likely not. After all, a polite, “How’s business going?” doesn’t quite count as a prospect inquiry.

2. Set a detailed budget for business expenses.

Even if you’re careful to keep personal and business expenses separate—without a proper plan for your spending, costs that qualify as legitimate business expenses can still add up faster than you may expect. Your goal as a business owner should be to not only keep your business and personal expenses separate but also to practice smart cash flow management in both areas.

Writing out a detailed budget for your business expenses is an important step toward making sure you keep your cash flow management under control.

Be sure to include not only regularly recurring expenses like your lease payment, payroll for employees, inventory purchases, and taxes, but also the irregular, day-to-day business expenses that arise, such as travel costs, office supplies and equipment, and meals out with clients or vendor contacts. These seemingly small operational expenses are often the ones that can most quickly add up to cripple your cash flow and undermine your business success.

3. Keep your business credit card in a separate location.

Whether you’re out to a late-night dinner or in the checkout line with a fussy child, it is all too easy in those distracted moments to simply grab the wrong credit card from your wallet, creating yet another mix-up as a result of using a business credit card for personal use.

To avoid this, consider keeping your business credit card in a separate pocket of your wallet or purse—or even leaving it stored away in your office desk unless you’re attending a business-related event. However you go about it, the goal here is to safeguard against the common mix-ups in credit card usage that happen when you’re out and about.

4. Make sure your business credit card stands out from the crowd.

Along those same lines, it’s a good idea to make sure that your business credit cards stand out visually from personal credit cards that you regularly carry.

Imagine squinting in a darkened restaurant, listening attentively to a friend’s riveting story as you covertly try to remember which credit card is the right shade of navy blue—or worse, try to make out the etchings of your business name in the restaurant’s dim lighting. You’re bound to make a mistake!

Yet if you ask, many credit card companies will be happy to offer you a selection of card faces so that you can instantly identify what’s what in your wallet.

5. Separate transactions when shopping for business and personal needs.

For home-based business owners, in particular, trips to the local big box store can be the most tempting beginning of that slippery slope toward charging a business credit card for personal use.

It starts innocently enough. The first time around, you need both laundry detergent and copy paper. “Does it really matter if I pay for that $6 laundry detergent on my business credit card?” you ask yourself. But the next time, you might need a new computer monitor and a hundred dollars worth of groceries—and bad habits can be hard to break.

It’s hard enough to splice between separate personal and business transactions charged to the same credit card. When it’s on the same transaction, you’re looking at hours spent with a calculator and a highlighter going line by line through receipts in order to get everything straight.

Is that really worth the extra 30 seconds saved in the checkout line?

Do yourself a favor and politely ask the cashier to separate your purchases into two separate transactions so you can use the right credit card for each.

What to Do If You’ve Used Your Business Credit Card for Personal Use

Imagine that you’re in line at the crowded grocery store. The cashier has scanned every item in your cart, and all that’s left to do is pay for your order. You reach for your wallet, only to discover that the only card available is your business credit card.

The reality is that even if you have no intention of using a business credit card for personal use, these circumstances do come up from time to time. That’s why you should always have a plan in place for how you’ll deal for expense reimbursements within your business—even if you’re running a business of one.

If you’re not sure where to start, here are three smart principles to follow any time you find yourself having intermingled business and personal spending:

1. Keep your receipts.

First and most obviously, be sure to hang onto receipts for any purchases that blur the line between personal and business expenses. If you can, keep these in a zippered section of your wallet or a place where they won’t be lost.

2. Send yourself an email.

While holding onto your receipts will be helpful in this instance, it’s not necessarily a failsafe. To make sure you have a searchable record of the expense for later, the answer is simple. Grab your smartphone, take a picture of the receipt, and send yourself an email that includes the date, store name, and something like “personal expense for reimbursement.” This way, when the time comes to process your business expenses, you’ll have an easy way to search for and reconcile the personal expense.

3. Add a journal entry to your accounting software.

Most bookkeepers recommend processing expenses for your business somewhere between once per week and once a month, depending on how many individual transactions you typically incur. This is the time when you’ll want to identify personal expenses, issue a reimbursement transfer between your personal and business accounts as needed, and use the journal entries function of your accounting software to denote the expense issue and match it with the reimbursement transaction.

The exact process for this can vary depending on your accounting program, so it’s best to consult your software’s tutorials section, customer service department, or your bookkeeper for exact guidance.

The Bottom Line

The takeaway here: Don’t use your business credit card for personal use. Keep them separate. As you can see, the process for clarifying the blurred lines between what’s business and what’s personal with regard to your credit card expenses can quickly become a minefield for frustration and lost time, leading all too many business owners to ignore the problem (and the accounting inaccuracies that go with it). This is a slippery slope that, in the long term, can wreak havoc on your taxes, your credit, and the fundability of your business.

While certain rewards and conveniences can make using a business credit card for personal use seem like a tempting prospect, the truth is that in the long run, this is a move that is rarely worth its added complications.

Bottom line? Just avoid it.

Article Sources:

  1. “Ordinary and Necessary Expense
Meredith Wood
GM, New Markets at NerdWallet

Meredith Wood

Meredith Wood is the founding editor of the Fundera Ledger and a GM at NerdWallet.

Meredith launched the Fundera Ledger in 2014. She has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending and financial management.

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