Should You Use a Personal or Business Credit Card?

by Robert Moskowitz on September 13, 2013
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The Small Business Credit Card Act of 2013 is unlikely to become law, but it marks a valiant attempt by U.S. legislators to update the venerable Truth in Lending Act and bring business credit cards more in line with those issued to individuals.

So, while the differences remain, you may be wondering whether you should use a personal credit card or one issued directly to your company for most of your business outlays.

Here’s a brief rundown of the major differences to help you decide.

Interest Rates

Do you pay off what you owe regularly, or do you carry a balance on your credit card? One of the biggest differences between personal and business cards is how their issuers treat interest rates.

With a personal card, the interest rates can’t be jacked up unless you’re at least 60 days late on your bill. If you’re current, you’re still legally entitled to at least 45 days warning about any important changes to the terms and conditions of your fixed-rate card agreement (variable rates are allowed to float with the market). Any introductory interest rate can’t be changed at all for six months.

Even better, if you borrow a sum from a personal card at one rate, the rate on that loan can’t change until you fully pay it off, although new borrowings may be charged different rates.

With a business card, the issuer can start you off at one interest rate, then switch you to a higher one at will, even on existing charges. It can change many other contract terms whenever it wants, too. That means you can borrow, or let your spending go partially un-repaid, at one interest rate, then suddenly find yourself assessed much higher finance charges than you anticipated. That’s not good for any business.

If you’re looking for a business card with better terms, Bank of America appears to be one of the few major card issuers that eschew such arbitrary interest-rate hikes on business credit cards.

Credit Risks

Despite their patina of being linked only to your business, credit cards issued in the name your company are still closely tied to your personal credit. Banks consider your personal credit history when you apply for a business credit card. If you let your business card fall into arrears, those late payments will show up in your personal credit history.

In other words, there’s really no “dividing line” between personal and business cards here. Your personal credit is linked to all your business credit-card activity.

Business-Oriented Perks

One area in which business credit cards offer significant advantages over personal credit cards is perks and rewards, such as instant cash back on every expenditure.

Business credit cards also give you access to relatively sophisticated expense-management tools, including the ability to categorize individual charges, which can be a convenience at tax time.

Also, you can usually obtain multiple business credit cards and receive individual statements under a single account, a feature you won’t find in most personal credit cards.

General Recommendations

If you know exactly how you will use a card, it’s relatively easy to compare offerings and select the best one for all your business spending needs.

But if you’re not sure, you can prepare for the most likely eventualities by obtaining several different cards with low or no annual fees and keeping track of their features — then use the optimal card for each expenditure.

Be aware, however, that credit card rules and requirements change fairly often. It’s a lucrative market, so card issuers constantly jockey for bigger market shares by juggling the features and costs associated with each of their card offerings. It’s helpful to review the terms of your personal and business credit cards at least annually and make new decisions about the most beneficial ways to use each of them accordingly.

Robert Moskowitz is a business writer for Intuit and is passionate about solving small business problems.

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