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Many credit card issuers offer personal and corporate credit cards, but these cards will often be very different.
A small business card may have a higher annual fee, higher credit limit, different rewards earning categories, and more. They may also differ in credit reporting, scoring, and legal terms.
It is essential to know these differences, how they impact your credit, and your approval odds.
What is the Difference Between Personal and Business Cards?
One key difference is where the credit card companies report. Business credit cards will sometimes report to business credit bureaus, and personal credit cards will only report to consumer credit bureaus.
There are a few exceptions to this rule. Some business credit cards will send credit card information to the consumer credit bureaus, so you’ll want to read the fine print before you apply. And some business credit cards won’t report to the business credit bureaus unless you default on the payments.
Business credit cards should be used to finance only business purchases. This helps you keep your business expenses separate from your personal expenses.
Now, let’s take a closer look at the key differences between business credit cards and personal credit cards.
Different Application Details
A business credit card application needs details about your business.
When applying for a personal credit card, you’ll need to enter your personal information. This includes your name, birth date, Social Security number, address, and income.
Also Read: Corporate Credit
The application process for business cards is similar, except the information required are your business details. While each credit card company is different, they can request any of the below information.
- Business name– your business’s legal name or your name if you are a sole proprietor.
- Business type– LLC, sole proprietor, S-corp, etc.
- Industry type
- Contact information– your business address and phone number.
- Time in business– either the date you opened the company or the duration you have been open.
- Number of employees
- Tax ID– either your EIN or your SS number if you are a sole proprietor.
- Business revenue– the annual revenue amount for your business.
- Business expenses– an estimated guess on how much you spend monthly.
- Personal income– usually requested if the business is young (not enough time in business).
- Your personal information– to verify your identity and evaluate your consumer credit.
- Personal guarantee– an agreement that you’ll pay the bill even if your business folds.
Different Credit Limits
Business credit cards usually have higher limits.
The credit limit on a credit card is the max amount you can charge to that card.
Credit card companies assign credit limits based on your creditworthiness and annual income or debt to income ratio.
On the other hand, business credit cards often come with much higher credit limits. According to Experian, the average combined credit limit on business credit cards for small businesses is just over $56,000.
Income is one deciding factor. A business is likely to have a higher income than an individual does.
Expenses are also considered. Businesses have more considerable expenses and often purchase high-dollar equipment that they may utilize for several years.
A business is also likely to have multiple employees as authorized users on their credit cards. A large company may not know what each employee is purchasing from day to day. So having a higher credit limit can prevent accidentally maxing out the credit card.
Business credit cards can affect both your personal and business credit scores.
While business credit cards are designed to build business credit, they can impact your personal credit score.
Which credit bureaus a business credit card reports to varies by lender.
Some business credit cards report only to your personal credit, while others report only to your business credit. And a select few report to both.
Another way a business credit card can impact both your personal credit and your business credit score is when you fail to make on-time payments.
If you have a business credit card that normally only reports to the business credit bureaus, leaving your balance unpaid could result in the delinquency being reported on your personal credit. This often only occurs when you are incredibly past due.
Also Read: Gas Cards that Build Business Credit
Remember that personal guarantee we mentioned earlier?
This comes into play when your business credit card becomes delinquent. The guarantee allows the credit card company to go after your personal assets and allows them to impact your personal credit negatively.
Consumer Protection Policies
There are no consumer protection policies on business credit cards.
Credit card companies have to follow the letter of the law regarding the cards they offer. There are several regulations and policies in place to prevent disreputable practices.
The most well-known is the Truth in Lending Act (TILA), also referenced as Regulation Z, which is what implemented TILA. This act provides guidelines and limitations on lenders’ behavior when it comes to loans and credit cards.
Because of this act, when it comes to personal credit cards, the credit card company has to disclose its fees upfront (interest rate, annual fee, etc.).
In addition, credit card companies are limited in charging fees. Upfront fees cannot exceed $75 in your first year or 25% of your initial credit limit (whichever value is lower).
The credit card companies are also required to provide you with guidance on repayment. Statements must include minimum payment warnings, estimates of how long it will take to repay debt, and the total you’ll pay with interest.
TILA also forces credit card companies to limit your liability to $50 when your card is lost or stolen.
When it comes to business credit cards, you have few, if any, protections. For example, the card issuer does not have to disclose fees, nor do they need to provide repayment information.
They do have to limit your liability, but the value can be much higher than $50.
New to Credit
Most small business owners need to use their personal credit to qualify for a business credit card.
When you have a small business, particularly if the company is brand new, you could find yourself dependent on personal credit instead of business credit.
Like with personal credit, it takes time to build your business credit score. New businesses don’t have business credit scores. Either they don’t have anything to report or their accounts are being reported to only one business credit bureau.
Newer businesses can also suffer from cash flow problems. Startup costs and expansion costs may eat up all of your profits for the first few years.
When a business credit card issuer looks at your business credit and finds it lacking, they may also ask for your personal information so that they can look at your personal credit.
This allows them to weigh your business credit alongside your personal credit history and your overall income to determine if you qualify for their credit card.
This is why it is so important to stay on top of your personal credit and your business credit.
Keep in mind that digital banks and fintech companies are often more likely to approve you than traditional banks.
Once you build your business credit, you can qualify for business credit cards that don’t affect your personal credit.
When you are just starting out, you’ll likely be dependent on your personal credit to qualify for business credit cards. And the cards that you are eligible for will likely impact your business credit and personal credit.
But as you build credit, you’ll qualify for better cards. Higher-tiered cards offer better rewards, better terms, and utilizing them won’t impact your personal credit.
Cards like the Chase Ink Business Preferred card will not report to your personal credit unless you are delinquent. The payment history, credit utilization, and other pertinent facts will only be reported to the business credit bureaus.
Other cards, like the CitiBusiness AAdvantage Platinum Select Mastercard, won’t report information to your personal credit ever. So even if you become delinquent, they will not report to the consumer credit bureaus.
Even though these cards don’t report to the consumer credit bureaus, they may still check your personal credit as part of the application process.
So, while using the card will in no way impact your personal credit, applying for it might if it results in a hard inquiry.
If you have bad credit and are looking for a credit card to help you build business credit, you could obtain a secured business credit card. Or you could open a personal secured credit card to give you an additional boost in improving your personal credit.
Is it Illegal to Use a Personal Credit Card for Business?
You can use whatever payment method you desire for your business. There are no limitations.
But generally speaking, you’ll want to avoid putting business purchases on a personal credit card.
The most important reason for keeping your business and personal expenses separate has to do with taxes.
Come tax time, the amount you owe will be based on your business’s profit after expenses. So the more expenses you write off, the better.
Paying for a business item on a personal credit card will make your accounting more difficult. It could also cause problems with your tax filing. For example, the IRS could question the validity of the purchase.
Another reason to avoid using personal credit cards for business purchases is that it doesn’t help build your business credit. Especially when your business is new, you’ll want to open a business credit card to start building your business credit faster.
Using a personal credit card for business purchases could also open you up for lawsuits. If your business ever folds and someone receives a judgment from your business, they could go after your personal assets if you have mixed your personal and business spending.
Is it Worth Having a Business Credit Card?
If you have a business, whether it is a large business or a small startup, obtaining a business card can be worthwhile.
As we have previously discussed, having a business credit card can help with your business accounting by keeping your business expenses separate from your personal expenses. Even if you are a sole-proprietor, this separation can help you come tax time.
Another good reason to open a business credit card is to help you build credit. Perhaps you’ll be looking to expand later down the road and will need financing. That loan you apply for will likely require you to have a decent business credit score.
And don’t forget about all of the rewards.
Most business credit cards come with some sort of rewards program. This can include travel rewards, cashback, statement credit for business expenses, and more.
Some credit card companies have cards targeted at certain industries, while others have cards that appeal to many types of businesses.
For example, the Chase Ink Business Preferred Credit Card offers 3X rewards points on the first $150,000 spent for shipping, internet, advertising, and travel.
Also compare this to the American Express Business Gold Card, which allows you to earn 4X points on 2 categories that you spend the most in.
A small business credit card is very different from a personal card.
A business credit card issuer will send information to the business credit bureaus, which will impact your business credit report and score. Changes to your business credit can affect your vendor relationships and qualification for business loans.
So, when you are ready to open a corporate card, be on the lookout for how it can impact your credit (personal and business) and evaluate whether the card and its terms (rewards, annual fee, etc.) are worth it.
Amanda Garland is a personal finance blogger living in Dallas, TX. 10 years ago she was living paycheck to paycheck and knew nothing about how credit works. She learned some hard lessons in her fight for financial stability. Now she has a friendly competition going with her husband to see who can reach a credit score of 850 first. She is also a poet, having obtained a Bachelor of Fine Arts degree in Creative Writing.