Business Credit Card vs. Personal Credit Card: How to Choose the Best Option for Your Business

ByVladana Donevski
May 31,2022

You may have heard that locking down a good business credit card is one of the crucial ingredients for running a successful business. But is that really true, or is your personal card sufficient? And if it turns out you need one, how do you pinpoint the benefits and figure out which type of card to pick?

If you need answers to these questions, keep reading to learn more about the difference between a business and a personal credit card.

Key Differences & Similarities 

Business and personal credit cards share a few common characteristics. Just like with personal cards, most business credit card applicants are personally responsible for the debt if their business fails. Also, in both cases, annual fees are tax-deductible as long as the cards are used to cover business expenses. 

In fact, business credit cards designed for freelancers, side hustles, and part-time gigs function a lot like personal ones. In some instances, a personal credit card is a better fit, as there is no law preventing you from using personal credit cards for business purchases. 

However, by going with a personal credit card, you are missing out on the opportunity to build your business credit scores. Most business credit cards report your activity to both consumer and commercial credit bureaus. However, some report exclusively to the latter and, as such, only affect business credit scores. Building your business' credit is as important as maintaining your personal one as it represents your company’s creditworthiness.

Another reason to separate ​​business and personal spending is to make bookkeeping for your business as easy as possible, especially come tax season. If you use the personal credit card for both, you may find it difficult to discern which purchases were made for business and are thus tax-deductible. 

The IRS doesn’t allow tax deductions on personal, living, or family expenses on your tax return. In short, by mixing the two, you could be missing out on tax deductions or risk getting audited by the IRS.

There is another key distinction between these two types of cards that’s especially relevant for companies with high operating costs. Most business credit cards have higher credit limits, which can serve as a lifeline to small businesses. We’ll delve deeper into some of these perks in the sections below.    

Benefits of Using Personal Credit Card for Business Purchases

Personal credit cards can be used to cover business expenses, especially if you are a one-man show or in the process of building your business from the ground up. Here is why you might consider using a personal card instead of a business one.

Personal Credit Cards Typically Have Lower Fees

If you have a good credit score, you’ll likely get better rates with a personal credit card rather than a business one. Personal credit cards typically come with lower annual fees and, on average, lower interest rates. Considering how every penny counts when you’re just starting your business, using personal credit cards for business makes sense in some cases.

Personal credit cards also offer better protection thanks to the Credit Card Act of 2009. Under this law, credit card issuers are obligated to give advanced notices about limit penalties and APR increases. But some of these protections don’t extend to businesses, which means you run the risk of not being notified about significant changes in fees.

Some Personal Credit Card Rewards Might Be a Better Fit

Many personal credit cards come with useful rewards. Some of these might be a better fit for your business than those offered through business credit cards. 

For example, one of the benefits of business credit cards may come in the form of excellent cashback for purchasing office supplies. However, if you buy two pens per month, you might benefit more from regular cashback rewards that cover multiple categories.

That said, there are a range of benefits to separating your business and personal purchases. 

The Benefits of Having a Business Credit Card 

Now that we’ve covered why you might decide to go with a personal credit card, let’s check why going with a business credit may be a better option.

Higher Spending Limits

Businesses typically spend more than your average consumer. That’s why business credit cards tend to offer higher spending limits. With a higher spending limit, you can cover more significant costs than when using a personal credit card for business, especially when trying to manage inventory costs.

When speaking of operating costs and transactions, you'll find that many business credit card issuers often add tools for tracking business expenses. These features will come in handy, especially when you are just starting your business and you’re not used to handling business expenses.

Free Employee Cards

Once your business does start growing, you can utilize other benefits of business credit cards, including free cards for employees. 

Keeping Your Credit Utilization Ratio Low

The credit utilization ratio is used to describe the percentage of the card’s credit limit that the holder is using. The ratio has a significant effect on your credit score. 

Those who use personal cards for business purchases drive up the credit utilization ratio and, by extension, lower their credit scores. On the other hand, those who separate their business and personal finances drive up their scores by using less of their available credit.       

To maintain a good credit score, you need to keep your credit utilization ratio below 30%. In other words, to prevent business purchases from making a dent in your personal credit score, you should have separate business cards from personal cards. 

Building Your Business Credit Score

Using personal credit cards for business doesn’t just harm your personal credit score, but you’re not doing your business any favors, either. By making business purchases with a business credit card, you are building your business’ credit score. 

This credit score can make it easier to find the right office space and secure business loans. Furthermore, your customers, potential investors, and partners use this metric to determine whether your business is worth their time and money.

Additional Perks of Using a Business Credit Card 

In addition to boosting your financial standing, a business credit card will often have excellent rewards designed to help you save some of the profits that would otherwise go toward business expenses. Let's check them out.

Save on Interest With Introductory APR

Business credit cards with 0% APR are a great way for businesses of all sizes to manage their finances and grow their operations. Since both types of cards can offer this introductory APR, if you don’t have large expenses, it won’t exactly settle the business credit card vs. personal credit card debate. 

However, if you do make larger investments, these introductory promotions where the interest is waived for a set period of time, typically between six and 18 months, can make all the difference. This makes it easier for new businesses to handle startup costs and make purchases without worrying about paying interest or accruing debt on their accounts.

Save on Expenses Using Rewards Programs

Many business credit cards offer rewards programs that can save you money on business expenses. Some of the rewards you can rely on are travel points, cashback, or points you can exchange for other perks. There are also a few saving programs that serve as generous benefits of business credit cards.

The first step is figuring out what type of rewards you are looking for. Some programs offer cashback or points that can be redeemed for merchandise or travel. Others may offer discounts on business expenses such as office supplies or fuel. There are also some programs that offer a combination of rewards.

Ultimately, you can always rely on a cash-back rewards program if you don't consistently spend enough to make use of other types of rewards.

Finally, make sure to compare the different options to identify the program that offers the best value for your business. By taking the time to research your options with a business credit card or a personal one, you can reduce your expenses and pinpoint the most relevant benefits.

Things to Look Out for When Choosing a Business Credit Card

Aside from the potential benefits, there are a number of important aspects that require your attention when choosing the right credit card.

Annual and Interest Fees

Most business and personal credit cards come with annual fees. The fact that these fees can range anywhere from $50 to $500 is a critical part of the business vs. personal credit card showdown. Also, the annual fee is often offset by the rewards and perks that come with the card.

In addition, business credit cards usually have higher interest rates than personal credit cards. This is because businesses are considered to be a higher risk than individuals when it comes to credit.

However, you can avoid paying interest on your business credit card by paying your balance in full each month. This will help you save money and keep your business finances in order.

Consumer Protection

Consumer protections for personal and business cards may vary greatly but can be a crucial component in managing a company’s finances. 

These protections help to ensure that businesses are able to access the funds they need when they need them without being subject to hidden fees or invasive account monitoring. They also help prevent unauthorized use of credit card accounts and provide limits on spending and borrowing. For small businesses, these protections can provide much-needed financial stability.

Summing it Up

So, should you get a business credit card or use a personal one to cover business-related expenses? While some freelancers and part-timers can get away with using a personal credit card for business expenses, a business credit card offers perks and protections to small businesses that simply aren’t available with a personal credit card. It can also help you build your business credit score and improve your personal one, which is important for accessing funding and other opportunities down the road.

Is business credit different from personal credit?

Yes, the two types of credit scores are not the same. One key difference between a business credit card and a personal one is that issuers of the former report your activities to commercial credit bureaus, which affects your business credit score. Meanwhile, your personal credit scores are based on information provided to consumer credit bureaus. 

Business credit scores are used by lenders to determine whether or not to extend a loan to a business. They can also be used by landlords trying to decide whether or not to approve a lease application or potential partners examining the profitability of your business.

Is it illegal to use a personal credit card for business?

Small business owners who are just starting out often find themselves asking: Can you use a personal credit card for business? The answer is yes. There is no law that forbids you from doing so. However, using the same credit card for both business and personal expenses can have some unintended consequences.

For starters, it can become difficult to keep track of the purchases that apply to your business. In addition, the combined balance on the same card can negatively impact your credit utilization ratio and, therefore, your credit score.

What can I use business credit for?

A business credit card can be used for a variety of expenses, including travel, office supplies, advertising, and marketing. Additionally, many business credit cards offer rewards in the form of cashback, points, or miles. There is a way to get to the bottom of the age-old debate: a business credit card vs. a personal one. Make sure to evaluate your spending and do your research to determine which option is right for your business.

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