Finance tools & tech 6 min read

Business credit cards vs personal credit cards: what’s right for your company?

Spendesk

Both business credit cards and personal credit cards give their user access to a line of credit. But the way they function is different. Knowing the difference between these two cards, and when to rely on each, can save you time and money. 

In this article we dive into exactly what the differences between the two are. Get a better idea of which is best to use based on payment types, debit, legal complications, and other factors. 

Not sure what those mean? Don’t worry. Let’s dive in.

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Business credit cards vs personal cards: key differences

There are lots of similarities between personal and business credit cards. For example, interest rates tend to be based on credit scores and income for both.

However, there are nuanced differences in things like APR terms, consumer protection laws, and others.

Business credit cards

Business cards are intended to be used by business owners for business related expenses.

For this reason, credit limits tend to be higher on business credit cards. because the underwriter takes into consideration not only the account holder’s personal income and credit score but also the revenue of their business.

Points rewards may have bonus categories such as online advertising, phone bills, and office supplies. 

Providers may even offer employee cards at no additional cost, tied to the main line of business credit. Naturally, this makes tracking individual employee expenses easier.

The very best also integrate with accounting automation software, so you can track expenses company-wide whether they come from cards, expense reports, invoices, or elsewhere.

Personal credit cards

Personal credit cards are intended to give individuals easy to access funds for daily expenses, splurges, and other personal spending.

One key difference is that consumer protection laws are stronger for personal credit cards in the US, thanks to the Credit Card Act of 2009. The Act protects individuals with personal credit cards from being charged unreasonable late fees, having their APR changed without warning, or being charged for small infractions.

Special rates of zero percent APR also tend to be longer and offer more generous terms for those interested in transferring balances to individuals with personal credit cards. The extended zero percent interest could last for more than twelve months for a personal card while those company cards that do offer this rate rarely do so for more than a year.

But the biggest difference overall is the fact that personal cards aren't designed to be shared or work as part of a team. In theory, good corporate credit cards record data centrally, so finance teams can easily see who's spending what. Personal cards are built just to be used by one person.

Should you use personal credit cards for business?

The short answer is no. There are no laws that prohibit this, but it will make reconciling card payments more difficult when it's time to prepare your personal and business taxes.

As a general rule, keep business spending totally separate from personal payments. These need to be declared separately, so making them with the same card creates a mess.

This may only be a minor inconvenience if you have minimal business expenses and you are using software to tag and track your purchases as you go. Unfortunately, the larger your business becomes the more of a mess this can create in your financial records. Untangling it could cause substantially more hours of work for your accountant which could increase your cost for general accounting services and tax preparation for both your personal and business taxes.

If you decide you’d rather not deal with opening a business line of credit there are a few things you can do to ensure it goes smoothly.

Differentiate spending

Just because you’re using a personal credit card doesn’t mean you should use the same card for personal and business expenses. Designate one or more cards to be exclusively used for business expenses. This will make reconciliation and tracking far easier than if you mix personal and business spending.

Having the expenses clearly separated can also be a life saver if you’re ever audited by the IRS. Without detailed receipts it could be virtually impossible to prove that dinner with your client wasn’t dinner with a friend several years down the road.

Deploy credit wisely

Credit utilization is a key factor in determining your personal credit score. Be mindful of how much money you have tied up in credit card debt for your business because it can have a negative impact on your personal credit score. The goal should be to use only about 30 percent of the available credit you have.

Since all purchases are considered personal when you're using a personal credit card, it may mean functionally having less access to credit if you want to keep your credit score from suffering. But if you don’t mind the dip or are able to pay off the balance every month you have more leeway.

Not having any credit debt, or under-utilizing the credit you have, can also negatively affect your credit score. So it pays to get the balance right.

Keep a clean repayment history

Even if you can’t pay off the balance in full every month, be sure to make payments on or before the due date. Payment history is another factor used by credit bureaus to determine your credit score. Late payments negatively impact your score.

However, on-time payments made consistently can help improve your score.

Use debit facilities wisely

Just because your debit card can be used like a credit card doesn’t mean you should be using the debit function for business purchases. If you use your debit card for these purchases, your money can be tied up for much longer than it needs to be and often in excess of the actual purchase price.

To prevent purchases for your business from tying up your personal funds, use the credit card payment option even if you’re using your debit card.

Should you use business credit cards for personal use?

While it’s not usually illegal to put personal expenses on a business credit card, there may be issues that arise from doing so.

Advantages to using your business card

There are several advantages to using your business credit card for personal expenses, otherwise no one would be tempted to do it. Some of the most common advantages are listed below.

  • More substantial welcome bonuses
  • Higher credit limit
  • Earn more rewards points
  • Redeem points for cash
  • Protect your personal credit score

Small business owners in particular may feel tempted to blur the line between business and personal credit. But there are significant downsides to doing this, not to mention legal risks. 

Disadvantages

The disadvantages of mixing personal finances with your business credit line far outweigh the advantages.

  • Filing taxes is more complex and time consuming
  • Audits are harder, and may be prompted by suspicious spending
  • Business credit could be negatively affected unless monitored closely
  • Obtaining a business loan could be more difficult
  • Fewer legal protections

Legal complications

In addition to the disadvantages mentioned previously, using your business credit card for personal purchases can create legal complications.

If your credit card company has a clause that prohibits personal spending, they could cancel the card or impose fines depending on the terms and conditions. While this might be difficult to prove, it would create obvious cash flow problems.

Another issue you could run into by mixing your expenses is opening the door for a court to “pierce the veil” and allow your personal assets to be at risk in the event of someone seeking damages against your corporation or limited liability company. Typically, personal assets are off limits in these cases, but if business and personal finances were mixed it can increase your risk of personal financial loss.

Good to know: credit reporting policies

We need to talk quickly about credit reporting policies. Both business and personal credit cards can report usage and payment history every month to the major consumer credit bureaus.

However, business credit cards sometimes only report to commercial credit bureaus and others report business credit card data to both. The distinction is important and should be taken into consideration before deciding which type of credit card to apply for and then use.

What's the right credit card for your business?

Ultimately, there is no one right answer. Obtaining a business card is within reach for business owners of all sizes. And having access to a business line of credit does offer benefits, and prevents a lot of headaches that come with using a personal credit card for business expenses.

When you decide to switch to a business credit card be sure to look for the solution that fits your business best, and will grow as you do. Usually this means: 

  • As many or as few cards as you need, depending on your team size
  • Easy payment tracking, without waiting for the card statement each month
  • Fraud protection and the ability to spot duplicate payments
  • Automated receipt collection
  • Real-time payment reconciliation, integrated with your accounting systems

In the end, you want smarter, safer spending at work. So finds the cards that offer just that. 

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