Both business credit cards and personal credit cards can make paying for purchases and earning rewards more convenient. At first glance, they may seem the same, but there are a few things that make business cards different from personal ones.
If you’re interested in getting a business credit card, these tips will help you understand the difference between the two.
Business credit cards are for business use.
If you are opening a business credit card, you must already have a business of some kind or plan to start one. The good news is that credit card companies can offer some flexibility in what constitutes a business.
For example, you do not need to have an Employer Identification Number (EIN) or be registered to be approved for a business card. It can be obtained even if you only have a part-time job or work as an independent contractor.
You may be wondering if you can use a business credit card for personal expenses. You can, says Brian DeChesar, founder of financial blog Mergers & Inquisitions, but you don’t have to.
“When preparing taxes, you have to analyze the transactions for the year one by one,” says DeChesar.
Not only is this time-consuming, but it can also make it difficult to report deductible expenses. And claiming personal expenses as a business deduction could inadvertently land you in trouble with the IRS.
If you’re considering combining business and personal expenses on the same card, make sure you have a good accounting system in place, says Spencer Reese, author of The War Money Guide: A Practical Guide to Financial Freedom.
Business credit cards can also be helpful in establishing and developing business credit. Your card issuer may share your account history with credit bureaus, which can play an important role in building a good credit score.
Rewards and bonuses match how you spend
Business and personal credit cards may offer rewards and introductory welcome bonuses, although they are not always the same.
- The Chase Ink Business Cash® credit card, for example, gives businesses a 5 percent cashback on the first $25,000 on combined purchases from office supply stores, and online, cable, and phone services each year.
- The Chase Freedom℠ Flex Personal Card offers a 5 percent cashback up to $1,500 each quarter in various bonus tiers upon activation, which in the past included department stores, grocery stores, and gas stations.
This is another reason why it makes sense to separate business and personal expenses. By tailoring your spending to your card and its associated reward categories, you have the best chance of maximizing your reward income.
As for welcome bonuses, they can sometimes be more generous for business cards, says Reese. But consider how much you need to spend to qualify.
For example, the Capital One Venture Rewards credit card gives you a 75,000 miles welcome bonus if you spend $4,000 on purchases within the first three months of opening an account. But to qualify for the 50,000 bonus miles through the Capital One Spark Miles for Business program, you need to spend $4,500 within the first three months.
APR interest rates, fees and offers are not identical
Both personal and business credit cards may charge interest and fees. The difference is that some business credit cards carry higher annual costs.
Jeff Rose, a certified financial planner and founder of Good Financial Cents, says that many business credit cards are exempt from an annual fee in the first year, but you shouldn’t overlook this fee when choosing a card.
“You end up having to pay, which is something to consider if you don’t shop a lot,” he says.
APR cards is another consideration. If you think you’ll be carrying a balance at any time, interest payments can increase your business debt.
“Paying interest on purchases makes your bonus card not very useful,” says Rose.
You can get around this by choosing a card with an initial APR offer, meaning you don’t pay interest for a set period of time, which often lasts a year or more. However, it is very important that you complete a debt repayment plan before the end of the initial APR offer.
Also, a business payment card is an alternative if you prefer to avoid charging interest. Because these cards require you to pay in full every month, you won’t pay any interest on what you charge. The trick is to make sure you only charge the amount you can afford to pay at the end of the month.
Business and personal cards offer various benefits
Like rewards and welcome bonuses, business credit cards can differ when it comes to perks and benefits. Again, the focus is on delivering benefits and features that are valuable to the business, not for day-to-day expenses.
Personal cards often come with benefits like purchase protection, travel insurance, and zero-liability fraud protection, Reese said. Business credit cards tend to emphasize other benefits, such as cost control or rebate programs that can save your business money.
Personal and corporate credit cards have one thing in common when it comes to perks: the higher the card’s annual fee, the better they tend to be.
Take the Platinum Card® from American Express and the Business Platinum Card® from American Express, which have an annual fee of $695.
- Both cards offer up to $200 annual airline emergency credit, airport lounge access, and another annual Clear membership credit.
- The Business Platinum card also includes concierge services and a 35% bonus to Membership Rewards points when you use the Pay with Points feature to pay for all or part of a flight booked with American Express Travel (up to 500,000 points per calendar year) .
Business cards can offer more purchasing power
When opening a new business or personal credit card, your first question may be which loan you are approved for.
DeChesar says corporate credit card limits tend to be much higher than personal cards, and for good reason: “It gives the business access to emergency funding.”
Having higher limits on a business credit card makes sense since businesses can charge more each month on average than the average person. Individual credit limits for business or personal cards usually depend on your credit score and financial profile.
For example, if you have a brand new business, chances are you will have a lower credit limit to start with. But in general, you may have more spending options with a corporate credit card than with a personal card.
There are some personal and business payment cards that do not have a pre-set spending limit. This means that instead of a fixed credit limit, the amount you can charge each month fluctuates based on account activity and credit history.
This is convenient, but again, what matters is how you use your purchasing power with a credit card.
“The downsides of a personal credit card are the same as a business card,” says Rose. “If you don’t get in the habit of paying off your balance every month, it can easily get out of hand.”
Card protection is not the same
One final thing to know about business and personal credit cards is how you are protected (and not protected) when spending.
“Business credit cards have higher limits, but they also have higher fees and fewer protections,” says DeChesar. “For example, a business card issuer can increase your APR out of the blue. This is not allowed with a personal credit card.”
Although some business credit card issuers have chosen to extend the consumer benefits set out in the CARD Act 2009 to business cards, not all of them have done so. For this reason, it is important to thoroughly research the protections, features, and benefits of a business credit card before applying.
Understanding the differences between business and personal cards will help you choose the right card for your business and your personal expenses. It is very important to separate your business and personal expenses by keeping your company’s expenses on a business credit card.
Your business credit card can affect your personal credit, so you should consider paying your business card every time as important as paying your personal card. This way you will improve your business credit score and not harm your personal score.