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4 Major Differences Between Business Credit Cards and Personal Credit Cards

April 16, 2015
Business Credit Cards, Credit Cards, Small Business
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When you’re setting up shop, you’ll probably want to apply for either a small business credit card or a personal credit card to cover company costs. But while these two products have plenty in common, they also have a few notable differences. Here are four you should know about before applying.

1. Small businesses may not be covered by consumer protections

You may think of yourself as a consumer, especially after you hang up the “closed” sign on your small business’s door every evening. But consumer protection laws, such as the Credit CARD Act of 2009, generally don’t apply to your business. Potentially, your APR could change overnight, or you could be charged exorbitant late fees for small infractions.

Because most issuers extend consumer protections as a courtesy to small businesses, you probably won’t have to worry too much about this – but it’s a good thing to keep in mind, since those protections aren’t available in every case. If your issuer is among the few that does not extend these protections, or doesn’t clearly express a position in the terms and conditions, ask about what you should expect.

2. Business credit cards affect business credit (and sometimes personal credit, too)

For most small business owners, the line between personal and business credit is blurry. If you sign a personal guarantee for your business credit cards, as almost all require, you’re liable for the company’s debt should your business miss payments. Several issuers also weigh your personal credit score heavily when deciding how much credit to extend to you. It’s not surprising that the reporting, too, is a mixed bag.

Many small business credit card issuers, including American Express and Capital One, report business activity to both consumer and commercial credit bureaus. Others, like Chase, just report to commercial credit bureaus, but may report to consumer bureaus in certain cases (for instance, if your company falls behind on payments). If your business credit activity is reported to consumer credit bureaus, it’s generally included on your credit reports and factored into your FICO scores, just as consumer activity would be, according to Jeff Scott, a FICO spokesman. If you’re not sure how your credit card reports, call your issuer to find out.

3. Business credit limits tend to be higher

If you’re making a lot of expensive purchases, a business credit card may be a better fit than a personal credit card, since they tend to have higher credit limits. Business credit scores from Equifax and Experian (but not Dun & Bradstreet) use your credit utilization to calculate your business credit score, so a higher limit can make it easier to use less of your available credit and improve your standing.

4. You’ll earn different types of rewards

Many business credit cards offer bonus rewards on phone bills, Wi-Fi or office supplies, a boon for companies spending heavily in these areas. But this may not be as helpful if you’re a sole proprietor and tend to use office supplies sparingly. If you’re having a hard time finding a business credit card that matches your needs, you may be better off with a flat-rate rewards program that lets you earn bonuses on all your purchases, or a personal credit card.

Note that if you use a personal credit card, you’ll have to use it only for business expenses and pay with it only with business money if your company’s a limited liability company, S-corporation or C-corporation. If you commingle expenses in this case, you may lose your personal liability protection. But even if you’re a sole proprietor, it’s easier to separate expenses so you can identify deductions more easily during tax season.

Which card should you get?

If you’re still on the fence, here are some guidelines to consider.

A business credit card may be better for:

  • An entrepreneur who wants to establish business credit for his or her business.
  • A company with major business expenses that align with most business credit card reward categories.
  • Someone looking for a higher credit limit for his or her business.

A personal credit card may be better for:

  • A sole proprietor with minimal overhead costs.
  • Someone whose spending doesn’t align with business credit card spending categories.
  • Someone who doesn’t anticipate applying for a small business loan anytime soon and isn’t interested in building business credit.

The sooner you find a credit card that fits your business’s needs, the sooner you’ll be on your way to better rewards and improved terms.

Claire Davidson is a staff writer covering personal finance for NerdWallet. Follow her on Twitter @ideclaire7 and on Google+.

Image via iStock.