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Why Freelancers Shouldn’t Apply for Business Credit Cards

Dec. 19, 2014
Business Credit Cards, Credit Cards
Why Freelancers Shouldn’t Apply for Business Credit Cards
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Big signup bonuses. Sweet travel rewards. Points galore. When most freelancers read about some of the best business credit cards, there are two big questions on their minds: “Can I apply for that credit card?” and “Will I get approved?”

The answers: Yes, and probably; it depends on your credit history. Many people with good credit find business credit cards surprisingly easy to qualify for, even if their enterprise is fairly young.

Applying for a separate credit card for your business expenses is a smart move and will make filing taxes much easier. But when it comes down to it, applying for a business credit card just doesn’t make sense for most freelancers.

Here’s why:

Monthly business expenses

Business credit cards are designed to reward bigger spending. Most freelancers who work from home, like writers and graphic designers, have very low monthly business expenses and would likely earn more rewards and receive more CARD Act protection through a separate personal credit card.

To be sure, if your business is costing you over $750 a month, getting a business credit card might make sense. But before filling out the credit card application, compare the business credit card rewards with other options. If your expenses are mainly travel-related, for instance, you might be able to find a better deal with a travel miles credit card.

Risk of overspending

Many business credit cards give rewards bonuses to those who spend $3,000 or $5,000 in the first few months, which might be normal spending for a small business. But for a freelancer, it could add pressure to overspend.

Don’t fudge the numbers by using a business credit card to cover personal expenses. Generally, business credit card contracts stipulate that the cards can only be used for business costs. If your card issuer finds out you’ve been using your card for other expenses, it will be considered credit card fraud and you could face up to $1 million in fines and 30 years in prison.

Annual fees

For companies that spend tens of thousands of dollars every year, shelling out $50 or $100 for an annual fee on a business card is nothing. But freelancers might want to think twice before signing the dotted line on the credit card application.

Half of freelancers say that not having stable income was an obstacle, and 47% noted that finding freelance work was difficult, according to a 2014 study (PDF) sponsored by Elance and Freelancers Union. If you’re struggling to get consistent freelance work, you might have a hard time coming up with money for annual fees. Don’t waste time trying to find a way to make your business fit a credit card. Instead, find a credit card that fits your business.

Image via iStock.