Business credit cards vs. personal credit cards

Are you in search of a credit card for your small business? Having trouble deciding between a business credit card and a personal rewards credit card? Business and personal credit cards are similar, but it is important to understand their differences in order to determine which type of card best fits your needs.

Factors like benefits and rewards, spending limits, consumer protections, employee perks and purchase reporting are important to consider when comparing business credit cards and personal credit cards. Here are some key differences to keep in mind when making your decision.

What’s the difference between a personal and a business credit card?

While personal credit cards function similarly to business cards, some significant differences lie in the details.

Keep in mind that personal credit cards are meant for personal use, whereas business cards are meant to be used by businesses. As such, the perks and benefits on these cards are designed to match the needs of their intended users. For example, a personal card may offer boosted cash back rewards on grocery spending, while a business card may come with higher spending limits and offer boosted rewards on advertising or office supply purchases.

Importantly, both types of cards can affect your personal credit history and score since many business cards require a personal guarantee. However, with responsible use business cards can also help you build your business credit history.

Are business credit cards only for business owners?

Yes, you need a business to be eligible for a business credit card. With that said, you don’t necessarily need to have a traditional business up and running to apply.

Generally, any person who makes money independently could be considered a business, so you don’t need to have a registered LLC or corporation to be eligible. Let’s assume, for example, that you have a lawn care or childcare business that is unincorporated. When completing a business card application, you can list yourself as a sole proprietor using your Social Security number, rather than including an Employer Identification Number (EIN).

If you’re not making money independently but intend to start a business and have business-related purchases to make, you’ll still have a solid shot at qualifying.

The application process for a business credit card is similar to that of a personal credit card, although it will include some questions related specifically to your business. For this reason, it’s best to apply only if you have a business or intend to start one.

It is important, however, to be intentional about the credit cards you choose to apply for. If you don’t have extensive business needs, consider applying for a personal credit card instead.

Why choose a business credit card over a personal credit card?

Personal credit cards offer perks and rewards geared toward consumers, and they tend to be easier to qualify for than business credit cards. However, business credit cards can provide a host of benefits that personal credit cards typically don’t, making them more attractive and worth the extra hassle for many business owners. In addition to dedicated business benefits and perks, there are plenty of other reasons why you might choose a business card over a personal card.

Better access to record keeping tools

It might benefit your small business to track finances with a business credit card. Many business cards provide detailed spending reports at the end of the year that simplify prepping for tax season and itemizing deductions on your return. The end-of-year reports that come with personal credit cards may not be as detailed.

Additionally, plenty of business credit cards offer built-in bookkeeping integration for platforms like QuickBooks, making it even easier to access detailed records of your business spending.

Start building business credit

While using a personal credit card might seem like the easier way to pay for your business expenses, the payments you’re making and responsible use of your card only contributes to your personal credit — not your business credit. Just like a poor personal credit score, a poor business credit score can close the doors to future financing opportunities. A business credit card is a helpful tool to start building your business credit score and for setting your business up for financing success.

Track employee spending

The simplicity of personal credit cards work well for solopreneurs. But if you’re lending out your personal credit card every time your employees need to make a supply run, it might be time to get a business credit card instead.

Most business cards offer free employee cards that you can distribute to trusted staff. These employees can then make purchases on behalf of your company, allowing you to track spending, set individual spending limits and earn lucrative card rewards faster. Some business credit cards even have a built in expense reporting system where you can quickly approve or deny transactions.

Higher credit limits

Business credit cards tend to come with higher credit limits than personal credit cards. A higher limit can provide more flexibility in the face of the steep operating costs small businesses can require. Yet a personal credit card might be best if you don’t need a particularly high credit limit.

Separate business and personal finances

Sorting through your finances when you’ve commingled business and personal transactions can be a headache for both you and your accountant. Having a card that’s dedicated to your business can make it easier for you to organize your business finances overall. You’ll know that all charges to that card count as business expenses, which makes it easier to set budgets between your personal and professional life, especially if you’re a sole proprietor.

More relevant rewards categories

Consider the types of purchases you’ll be making on behalf of the business. If you have recurring business purchases, you might benefit from a business credit card. Some business credit cards tailor cash back rewards to categories like office supplies, phone bills or marketing costs that support small businesses. Some even offer statement credits for popular business-related retailers like Staples and Dell.

If your business doesn’t tend to lean in one particular direction regarding spending, a flat-rate rewards card may be the way to go.

Business-related perks

When you’re comparing business cards vs. personal cards, it’s important to consider the perks you could get from each. Your personal card will likely reward your spending with perks like personal purchase protection, moderate welcome offers or bonus rewards at partnered retailers. Meanwhile, business credit cards typically have more valuable perks catered to business owners — such as software statement credits, free employee cards, extended warranties and more generous welcome offers.

Why choose a personal credit card over a business credit card?

When deciding between a business vs. personal credit card, there are some situations where a personal credit card might be the better choice. Here are some reasons you may want to choose a personal credit card instead of a business credit card.

Longer 0% intro APR periods

Personal credit cards can offer 0 percent intro APR periods that last anywhere from 12 to 21 months for purchases and balance transfers. Business credit cards generally offer relatively shorter 0 percent APR periods, and they typically apply to purchases only, not balance transfers.

If you aren’t looking to transfer high-interest debt from another card, you may not need a long zero-interest intro period — but it’s something to keep in mind.

Enjoy consumer protections

Business cards don’t qualify for the same protections that consumer cards do under the Credit Card Accountability Responsibility and Disclosure Act of 2009 — more commonly called the CARD Act. If you decide to apply for a business credit card, carefully read the card’s terms and conditions to confirm that you’re comfortable with the level of protection the issuer offers. You’ll find that at least a few issuers offer protections similar to the consumer protections you’d enjoy with a personal card, even if the law doesn’t require them to.

Continue building personal credit

If you’re still in the process of building your personal credit, then getting a business credit card might not be feasible for you since it typically requires an established personal credit history. Although you may want to take advantage of business credit card perks, focus on building your personal credit first. Many people start the process of improving their credit by getting a secured credit card.

Your purchases don’t match rewards categories

Analyze your business spending. If your business purchases are few and far between, or they don’t usually fall in the categories of business spending, choosing a personal credit card over a business credit card could be the best bet. Since personal credit cards reward spending in categories like gas, groceries, restaurants and retail shopping, you could earn more rewards by using a personal credit card.

The bottom line

Deciding on whether to use a business credit card vs. a personal card isn’t always the easiest call to make. It’s dependent on the needs of your small business and the state of your finances.

Personal credit cards offer clear advantages like longer introductory APR periods, consumer protections and helping you build personal credit. However, when you’re making money independently or have a small business, one of the best small business credit cards can be a handy way to build business credit, organize bookkeeping and handle short-term operating costs. They also tend to offer generous rewards on your business spending.

No matter which of these two card types you choose, smart business owners keep personal and business spending separate — which is especially useful when filing your business and personal tax returns.