Personal and business credit cards differ in many ways, including credit reporting policies, rewards, categories, and 0% intro APR periods. Whether you have your own small business or just want to keep work purchases separate from personal ones, you have likely considered obtaining a business credit card.
Let’s look at the difference between personal and business credit cards and the advantages business credit cards can offer business owners.
On the surface, both personal and business credit cards let you make purchases on credit and you pay that credit card back through monthly payments with varying percentages of interest owed on leftover balances and rewards available.
However, many business credit cards offer better rewards than personal credit cards, additional benefits specifically geared to professionals’ needs, and the added financial flexibility and spending power business credit cards offer.
Other differences include:Credit reporting policies: While personal credit cards report your activity to the three major consumer credit bureaus (Experian, Equifax, and TransUnion), small business credit cards primarily report to business credit bureaus and have little impact on your personal credit score.
Short-term spending flexibility - Business credit cards can be a helpful way to cover unexpected expenses and costs, especially when you don’t have the cash on hand. Be careful to not spend more money than you expect to come in to avoid potential debt.
Easy qualification - Compared to other funding options, like small business loans, it’s easy to qualify for personal and business credit cards. And for the latter, individuals who don’t own a business yet, but have some business-related purchases or are self-employed can often still qualify. Plus, there is no collateral required either.
Building company credit - Credit cards are a great way to build one’s personal and business credit score. By building and improving your credit you will be able to borrow more money at lower interest rates and seek out additional financing and funding options.
Potential impact on personal credit - Just like missing payments on personal credit cards, late payments on business credit cards can damage your personal credit score. Avoid making risky purchases and ensure you can pay the balance each and every month.
Potential to overextend - The ability to get multiple credit cards to your or your company’s bills and suppliers puts everyone at risk. Use only one credit card to closely manage your expenses and credit status.
High-Interest rates - While easier to qualify for, credit cards come with high interest rates when compared to small business loans. Meaning, if you cannot pay the balance each month, interest will accrue and these credit cards can cost more than you bargained for.
Fewer protections against fraud - You could intentionally or unintentionally use the business credit card for personal purchases. If you do so and fraudsters also steal your credit card information, it can be difficult to prove fraudulent purchases. Be safe and only use business credit cards to pay for business expenses.
Personal, and especially business credit cards must be used responsibly, or else you run the risk of harming the long-term success of you personally and the success of your business.
That said, they can be extremely helpful if you are a new or established business looking to:Build personal and business credit
Generally, the same process is involved when applying for a personal or business credit card.
You will likely need to provide your business name, the type of business, phone number, address, and your social security number, or employer identification number (EIC) for a partnership, LLC, or corporation.
Need help determining if a business credit card is right for you?
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