Business Credit Card vs Personal Credit Card: How To Choose The Right One
Considering if you need to apply for and use a business credit card?
Well, you’ve come to the right place, since business credit cards work a little differently than personal credit cards.
Below, we break down the 10 key differences between business credit cards vs personal credit cards.
Then we review a few of the advantages personal cards retain over business cards.
We will put this caveat up front. For all the general rules we describe in this article, there are exceptions and situations where they don’t apply to nearly every single one. Remember to do your own due diligence and carefully review any financial products you plan to use. Don’t be afraid to ask questions and specifics from the financial institution you’re considering doing business with.
Let’s jump in.
Key differences between business credit cards vs personal credit cards
1. Business credit cards tend to have higher credit limits
Most personal credit cards’ credit limit is in the $10-30K range (of course some are higher or lower).
Since businesses may need to spend much more than that per month, they are often afforded a significantly higher credit line.
However, this is not automatic or guaranteed and will still depend on the credit rating of the business and the creditworthiness of the business owner.
For example, I was shocked at the tiny credit line I was offered when I started my first business. At the time, I had over $150K in available credit from about 5 different personal cards. Multiple of the credit card companies I dealt with said they would be happy to offer me more credit, but I reached their limit they off any one individual. I then opened a small LLC and applied for a business credit card. I was shocked when they told me since my business was brand new and had no credit history they would only extend me a credit line of $2K! What!?
Eventually, my small business was extended much more credit than that, but it still had to start small and built credit over time with on-time payments, just like anyone else.
2. Business credit cards potentially have higher sign-up bonuses
Since business accounts can potentially be much more lucrative for financial institutions, the signup bonuses and rewards offered tend to be higher than those on personal cards.
Make sure you shop around though, because this is not true in every case!
Financial institutions are willing to pay more in sign-up rewards to get business customers since those customers tend to spend more on their cards and they also tend to need more financial products. This can help deepen the relationship for the financial institution, so they’re willing to pay more upfront to get the customer.
To get these additional rewards, though, they generally have higher minimum spending requirements in the first few months, to get the full rewards.
3. Business credit cards have different credit reporting than personal credit cards
Business credit cards tend to report to the business credit rating agencies, namely Equifax Small Business, Experian Commercial, and Dun & Bradstreet, rather than the three consumer credit bureaus, Transunion, Experian, and Equifax.
Certain business credit cards will ALSO report to consumer agencies, so this is something you may want to check carefully before applying.
4. Business credit cards often have rewards programs tailored to business needs
The rewards programs on business credit cards can often help you get more points or cash back than you would using a personal credit card.
Many business cards have higher percentage reward categories for common business expenses like office supplies.
If you’re willing to pay attention, you can optimize your spending here and make sure you’re getting the highest rewards possible.
5. Business cards help you keep business and personal expenses separate
Keeping your business and personal expenses clear and separate is important for two reasons
1. For your own management and understanding. It’s important to understand what’s happening in your business and how it’s performing. Co-mingling business and personal expenses can make this hard to see and understand. Keeping business expenses separate can make this much more clear.
2. For tax purposes. It’s important to keep accurate business records in order to file both your personal and business taxes correctly. And to be prepared for an audit if and when it comes!
6. Business credit cards tend to have better tools specific to business needs
As a way to acquire and retain customers, many business credit cards offer special tools and benefits that are specifically helpful to businesses but would be irrelevant to most individuals.
These can range from things like expense management and insight tools to employee expense tracking, to even tax and accounting tools.
7. They also may offer special business-specific perks
Business cards often offer slightly different perks than personal cards.
For example, they might offer insurance with a card tailored to businesses and often offer different travel rewards for heavy business travelers.
8. Often, the application will work a little differently
For example, many business credit cards will ask you to submit an Employee Identification Number (EIN) when applying, instead of a Social Security Number (SSN). This ensures you’re business has at least taken the minimum steps to be set up correctly and registered with the authorities.
This does tend to vary, though, and some business cards, particularly those targeted at small businesses like sole proprietorships, may only require the business owner’s SSN.
9. Bussiness cards often extend credit based on the businesses credit rating, instead of a person’s credit score
Like a person’s credit score, a business’s credit rating is intended to give potential lenders an all-in-one score that communicates their ability and likelihood to repay debts. It works similarly to a credit score but is on a scale of 1-100, instead of 350-850 and can also be built up over time.
Again, there are some nuances you may want to check here with each card. For example, again particularly in small businesses, some credit card issuers may look at both the business’s credit rating as well as the owner’s credit score.
10. Business credit cards may have fewer protections than personal cards
Consumer, or personal, credit cards have additional protections to protect the general public. These include things like restrictions on rates and rate changes and fee limitations.
Generally, business cards are not subject to these protections, so make sure you do your research upfront extra carefully and track changes to your business credit card program closely.
What’s the flip side? What are the benefits of personal cards over business cards?
Personal credit cards do retain a few advantages over business credit cards.
- They can be easier to qualify for. Sometimes as easy as filling out a short application and receiving an instant response. Business cards tend to require more documentation that you are a real business, that your business is set up legally correctly, and that there are operations and or assets that will allow you to pay back anything you charge to the card.
- They often have lower fees and rates. Without consumer protections offered to regular credit cards, business cards often come with higher rates and/or fees. This is definitely something to watch out for and you will want to make sure you’re paying off the card in full each month!
- Rewards programs may apply to more purchases. While business cards might offer higher reward rates in certain business-related categories, they might offer low or no rewards in other areas. In contrast, you can often find a relatively high, flat cash-back rate on all purchases on personal cards. For example, at writing, it’s not hard to find a personal card that has a flat 2% cash-back rate that applies to all purchases, if you have a good credit score.
- Personal cards can be used for business expenses. While this risks co-mingling expenses and reporting, which we won’t recommend, it is an option to keep in mind. If you need to, or if you’re willing to sort through the co-mingled reports, you can certainly still use your personal card to apply for business expenses.
What should I consider when choosing between a business credit card vs. a personal credit card?
These are the three critical factors we would consider:
- Business needs: if you need access to tools like employee expense reporting, you may need a business credit card since personal cards won’t offer tools like this. You also may get business-specific perks.
- Rewards preferences: if you want to optimize or maximize your business expenses spending, you will likely want to get a business card that tends to offer higher rates in business-specific categories.
- Size and scope of business: generally, the larger your business gets, the more likely it is you will need a business credit card. This is because the above two reasons will become more important and will have a larger your business becomes and also because larger businesses tend to be more complex and so tracking and reporting will become increasingly important and you’ll need to keep business expenses separate from personal.
At Personal Finance Guru, we want to help you maximize your lifestyle through personal finance. You can trust the integrity of our independent financial advice. Our opinions are our own and have not been provided, reviewed, approved, or endorsed by any advertiser or financial product provider. To support and grow the site, however, we may receive compensation from the issuers of some products.
Meet our Personal Finance Experts:
Cody is the founder and owner of Personal Finance Guru. His day job is as a management consultant at one of the Top 3 firms (think Mckinsey, Bain), where he advises Fortune 500 C-suite clients on their most important and pressing business problems. He completed his business education at Harvard Business School.
After seeing the lack of personal finance education for regular people, Cody started the website with the mission to provide everyone access to information that will help them achieve their financial goals.
Cody approaches personal finance from a maximalist perspective, shunning typical advice around simply not buying a cup of coffee instead of more effective methods like investing in yourself to quickly grow your income.
He believes in saving money and investing for the future, but he also knows that you need to enjoy life today. That’s why Cody approaches money with a sense of humor and a positive attitude. He knows that if you’re not having fun while you’re growing your wealth, then what’s the point?
Cody approaches life with the same gusto that he brings to personal finance. He loves to travel and experience new cultures, and he is an avid reader and learner. He also enjoys playing sports (especially tennis) and spending time with his family and friends.