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Most prospective business owners know you’re not supposed to mix personal and business finances.
But for many, understanding which things you should not and cannot do can make all the difference.
Is it illegal to use a business credit card for personal use?
No, but here’s why you shouldn’t do it.
Is It Illegal to Use a Business Credit Card for Personal Use?
It’s not illegal to use a business credit card for personal purposes. In short, no one will arrest you should you use a business card for non-business-related expenses. There are no laws against the use of your card for these reasons.
But that doesn’t mean it’s something that should be done, especially with great frequency.
In fact, there are numerous reasons why you might wish to continue to keep business and personal life separate. From losing your account entirely to facing penalties, you’re greatly incentivized to keep the two separate.
Knowing why can help you avoid any potential consequences in the future.
Consequences of Using a Business Credit Card for Personal Use
Before you swipe your business card, consider the following:
Much like with a personal credit card, every business credit card comes with terms and conditions.
In many cases, you’re prohibited from using your business credit card for personal purchases. You will find the language directly in your agreement.
Should you violate these terms and conditions, you might not receive just a slap on the hand in the form of a fee or penalty.
Business credit card issuers may instead simply close down your account as a result of your actions.
Things may happen from time to time, and that’s unlikely to have any serious repercussions on your business credit.
However, continued personal spending that alerts your issuer to violations could give them what they need to make a decision.
If you want to develop a long, stable credit history, avoiding account closure and sticking to business transactions is best.
Liable for Personal Debts
As we’ve already established, there are no laws against using your business credit card for personal purchases.
But that doesn’t mean that doing so won’t open you up to potential legal issues down the road.
When you use your business credit card for personal purchases, it can create a slew of problems.
One point of creating a business entity is to create a business that can be held liable instead of you. This is extremely helpful in separating your business finances and your personal finances. It allows you to prevent your business activity from impacting your personal life.
However, once you start using your card for personal transactions, it dissolves that separation and puts you on the hook for your spending. This puts your personal finances at risk.
If there are any big expenses in your business that you’ve purchased with your card, you’re personally responsible for taking care of them.
Doing Your Taxes Will Be Much More Complicated
So far, we’ve talked about the real and swift consequences of mixing business and personal finances.
But using your business credit card inappropriately doesn’t stop there.
Another potential issue that you could face down the road is having trouble properly filing your taxes.
As a business owner, filing your taxes relies on separating your business and personal activity. You can deduct business expenses to help you save more of your profits, for example.
But when you start using your credit card for personal expenses, it can be hard to discern between transaction types.
The last thing that you want to do is open yourself up to an audit because you don’t know how you’re actually spending your money in your business. However, this is a real possibility when you start using your business credit card for non-business spending.
Your Personal Credit Just Might Be on the Line
When you use your personal credit card and are unable to pay your bills, there are consequences.
These consequences come in the form of growing debt and a tanking credit score that will continue to decrease as you fail to make payments.
But some may think, what could possibly go wrong if I use my business credit card for personal reasons and don’t make payments?
The first consequence comes in the form of a hit to your business credit score.
However, it doesn’t just stop there.
If you have a business credit card that reports negative activity to credit bureaus, your personal credit score can still be at risk.
Even if you don’t have a business credit card that reports, you could potentially violate the terms of your card. Doing so may allow companies to report your activity to consumer credit bureaus.
This is alongside the list of consequences listed here.
If you’re looking to keep your personal credit in good standing, don’t use your business credit card for personal purposes.
Your Purchases Aren’t Covered By Consumer Protections
Consumer credit cards enjoy certain regulations. This includes preventing issuers from hiking up interest rates or tacking on fees whenever they feel like it.
As a consumer, this is important to your financial health. It allows you to make purchases with confidence and plan things out so that you can properly afford them.
But what happens when you use your business credit card for personal reasons?
All of these rules go out the window.
From hiked rates on purchases to difficult disputes, there are plenty of reasons to stick to your personal credit card for personal purchases.
Higher Fees and Higher Interest Rates
Higher fees and interest rates come in many forms on business credit cards.
Higher fees can be tacked on whenever, even after a purchase has been made. You may even see fees on specific purchases.
Meanwhile, interest rates on purchases as well as on the entire card are subject to change at any time.
This is a natural part of doing business. However, if you’re making personal purchases, you can end up paying exorbitant prices for the same things you could use your regular card for.
Put simply, only pay for non-business-related expenses with your non-business credit card.
What If It’s an Accident?
You might accidentally grab the wrong card or not think about what you’re spending your money on.
In any case, an accident isn’t something to completely fret over. Communicate your mistake with your issuer immediately. Then, take the necessary precautions to avoid making that mistake later!
Your business credit card is designed for business purchases. However, some people will make personal purchases with these cards.
While it’s not illegal, there are severe repercussions.
Brush up on your business credit card spending knowledge and keep your finances separate moving forward!
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Dylan Buckley is a freelance finance writer and editor with 7 years of professional experience. Specializing in personal finance, cryptocurrency investments, and Fintech, Dylan is deeply passionate about creating content that helps readers make informed, confident financial decisions. He studied finance in college and maintains a credit score over 780.