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  • Writer's pictureAntonio Buchanan

"Difference Between a Personal and Business Credit Card"

at is the difference?

When you’re doing research on the business credit card vs. personal credit card debate, you’ll find that the 2 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. With that being said, you need to know about a few key differences between the 2 types of cards.

Here are the 4 things you need to know when making the business credit card vs. personal credit card decision:

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 can help you build business credit

A personal credit card generally can’t help you build business credit, though your business and personal credit may be linked. Using a business credit card and paying the bill on time is one way to help build your business’s credit.

Your personal credit can determine your eligibility for financial products, such as loans or credit cards, as well as the interest rate or terms you’re offered. Similarly, your business credit can impact your business’s ability to qualify for loans, credit lines, terms from vendors and equipment or office leases.Your business credit can also impact how much you’ll pay for business insurance. If you’re a sole proprietor, your personal credit may also be considered when you apply for business-related financial products.

Be careful about missing a business credit card payment as it could hurt both your business and personal credit. Some business card issuers report card use to the consumer credit bureaus, who compile the information your personal credit scores are based on. Also, you may be held liable for the debt if you signed a personal guarantee.

As with personal credit, building your business credit can take time. Opening and using a business credit card is a simple way to get started.

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 may offer business-specific benefits

Personal credit cards often offer a variety of benefits. They could protect you from paying for fraudulent purchases, offer a rewards program and give additional perks such as rental car insurance or free access to airport lounges. Business credit cards often offer similar benefits, but they’re tailored to the needs of business owners. For example, your card could come with:

Free employee cards. You can give your employees a card so they can easily make purchases on the business’s behalf. You may be able to monitor their spending and control where they can use the card and how much they spend.

Business-specific rewards programs. You could get a card that offers cash back rewards on shipping, advertising and other common business purchases.

Higher-limit purchase protection. With purchase protection, the card’s issuer may be willing to reimburse you if an item you buy is damaged or stolen. Personal cards may offer this perk, but business cards could cover more expensive purchases.

Bottom Line

Opening a business credit card means your eyes need to be on your account as often as possible. Set reminders to check your due dates, and try not to carry a balance on your card. This will automatically protect you from any rate hikes that may occur, and you won’t have to worry about introductory rates expiring randomly.

As long as you treat your business credit card like you would a personal credit card (that is, responsibly), you’ll be able to take advantage of the many perks offered to business owners. You’ll have an easier time sorting your expenses, your business and personal credit will (for the most part) be kept separate, and you can enjoy gaining rewards points from both your business and personal cards.

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.

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