Maintaining separate business and personal finances allows you to be more organized at tax time, and is essential for protecting your personal assets. Using a business credit card for company expenses is one way to create that critical distinction. Keep reading to learn more about the key differences between business and personal credit cards.
What’s the Difference Between Business and Personal Credit Cards?
Generally Accepted Use
Business credit cards are designed to cover expenses related to operating and growing your company. This may include attending an industry conference or eating meals while traveling for business. If you own a company and have a handful of employees, you may share a business credit card to cover company-related expenses. Personal credit cards, on the other hand, are meant to pay for personal expenses, such as groceries, gas, and other everyday purchases.
Rewards Programs
Both business credit cards and personal cards provide the opportunity for individuals to earn rewards. Business credit card rewards programs give you points, cash back, or airline miles for spending within business-related categories, such as shipping or advertising. Personal credit card rewards programs give you perks as well. These are based more on the individual, offering perks for doing things like buying groceries, dining out, or purchasing goods from a drugstore.
Credit Reporting
When you apply for a business credit card, your personal credit will typically get checked to help determine your creditworthiness. Plus, an inquiry will appear on your personal credit report. Often, your account usage will be reported to the consumer credit bureaus (Experian, Equifax, and TransUnion) and show up on your personal credit report. That being said, there are business credit cards that exclusively report to the business credit reporting agencies: Dun and Bradstreet, Experian Commercial, and Equifax Small Business. Using one or more of these business credit cards can help you keep your personal credit out of the equation and build business credit.
Credit Evaluation
As you build business credit, you earn a credit rating. Your credit rating is based on several data points in your business credit report, such as payment history, the number of accounts on file, and public records like liens or bankruptcies, if applicable. Your personal credit evaluation, or credit score, is based on similar data within your consumer credit report.
Consumer Protections
Your personal credit card accounts are protected by the Truth in Lending Act, which requires lenders to educate borrowers about the cost and terms of the debt they’re assuming. Unfortunately, most of the Act doesn’t apply to business credit card accounts. In regard to liability, though, the Act states you can’t get issued a business credit card unless you ask for one. Plus, if the card is lost or stolen, the employee cardholder generally can’t be held liable for fraudulent charges greater than $50.
Which Is Right for You?
A business credit card may be right for you if you want to:
Build business credit Buy goods and services for your enterprise while preserving the firm’s cash flow Earn rewards for making company purchases
A personal credit card may be right for you if you want to:
Buy goods and services for your personal life while preserving your cash flowEarn rewards for making personal purchases
You can apply and maintain both a business credit card and a personal credit card. To successfully balance using both types of credit cards, you should:
Use separate, designated accounts for business and personal purchases Pay all of your credit card bills on time Limit your spending to what you can easily afford to repay
The Bottom Line
When you’re an entrepreneur, both business and personal credit cards can have places in your wallet. But it’s important to remember each card’s intended purpose before you make a purchase. Your business credit card is there to finance company expenses, and your personal credit card is there to pay for the goods and services you need to live your life.
