Business Credit Card vs. Personal Credit Card: Key Differences
Both business and personal credit cards give you access to a line of credit you can use to pay for expenses. Depending on the card, both could also let you earn points or miles, and offer balance transfers.
However, there are also some key differences. For example, business credit cards may offer the opportunity to earn points or miles on common business spending categories like office supplies while personal credit cards may let you earn more rewards on qualifying purchases such as groceries or shopping at department stores.
Here, we’ll look at some of the important differences between business and personal credit cards.
Who is eligible?
Eligibility requirements for business and personal credit cards can differ.
To qualify for a personal credit card, you must meet the card issuer’s creditworthiness, age and financial requirements.
Business owners – that includes independent contractors, freelancers and sole proprietors – could apply for a business credit card. If you have a side hustle that generates some revenue, you can typically apply for a business credit card. While you usually don’t need a formal business structure to apply, you may be required to provide your business name, revenue, and tax ID or Social Security number during the application process.
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Credit limits
Business credit cards can come with higher credit limits compared to personal credit cards. This is because businesses often have larger expenses, such as inventory purchases, travel or employee-related costs.
Earning rewards
Both business and personal credit cards could have the option to earn reward points on qualifying purchases, but they may be tailored to different spending priorities.
Business credit cards are designed to meet the needs of business owners and may offer the ability to earn more points or miles on categories like office supplies, shipping or travel.
On the other hand, personal credit cards may be more tailored to individual spending habits. They may let you earn points or miles on categories like dining, groceries and entertainment.
Tools and features
Business credit cards can come with tools that help streamline operations, such as expense tracking or the ability to request cards for employees. Personal credit cards may offer features like budgeting tools and spending alerts, but they generally are not designed to manage business-related expenses.
Impact on creditworthiness
Personal credit cards can only impact your personal credit. Credit scoring models consider factors like credit mix, utilization, payment history, length of credit history and new credit.
Business cards can impact your business credit score as well as your personal credit score. If you’re asked to provide a personal guarantee when applying for a business credit card – which is common – your payment history, utilization and other behavior may impact your personal credit.
Choosing between a business and personal credit card
The right credit card depends on your financial needs and goals. A business credit card can help you keep your business and personal expenses separate. Depending on the rewards structure, you may be able to earn more points or miles on certain purchases. On the other hand, a personal credit card may be better suited for everyday expenses and may offer the ability to earn points or miles on categories like dining, groceries and entertainment. Evaluate your spending habits and the benefits each card offers to determine which option aligns best with your priorities.
Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
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How Do Consumer Protections for Business Credit Cards and Personal Cards Differ?
How Do Consumer Protections for Business Credit Cards and Personal Cards Differ?
Small business owners often compare business credit cards vs personal credit cards to unlock greater spending power and fuel company growth. In most cases, they can choose to use a personal consumer credit card or a business card in their company’s name.
There are benefits to utilizing a business credit card rather than a personal credit card, especially when building business credit or managing multiple employee expenses. including liberal cash back rewards programs and the ability to establish and build business credit. Yet, putting business purchases on a personal credit card might be a better idea for sole proprietorships due to the government-backed consumer protections they provide.
Business card companies may offer similar safeguards like fraud protection and rate increase notifications; however, this is left to each issuer’s discretion. Therefore, it’s up to you to read and understand your card member agreement so you know which of the following protections you have.
Fraud Protection
When another individual uses your credit cards or account numbers to make purchases without your knowledge or consent, you could be held liable.
The Fair Credit Billing Act (FCBA) limits your liability to $50 for purchases made on a lost or stolen personal card. Anything above that amount is covered if you communicate the loss within 60 days. Plus, you’re not liable for purchases made after you report your card missing or for fraudulent charges made using the card number if the card itself is still in your possession.
The FCBA does not extend to fraudulent business card charges; therefore, to save your credit, you could be on the hook to reimburse your card company for those unauthorized purchases. Your issuer may offer fraud protection, though with more stringent notification requirements, they may only cover fraudulent activity if they’re notified within 24 hours of the breach.
For added security, look for business credit cards with fraud protection, especially if you’re concerned about small business credit card fraud.
Rate Increase Notifications
Both business and personal credit cards assess interest on balances that roll over month to month. Nearly all credit cards use a variable rate, so the APR you are promised when you open your account may change over time.
The Credit Card Accountability, Responsibility, and Disclosure Act (Credit CARD Act) of 2009 protects consumer cardholders from being blindsided by rate hikes. Issuers are mandated by law to notify you 45 days before new account terms go into effect, including an interest rate increase.
Business card policies are not bound by the Credit CARD Act of 2009. Although many commercial credit card companies will notify you before raising your rates, they are technically allowed to change their terms at any time without notice.
Penalty Fees and Rates
When you make a payment after your due date, most credit card issuers will charge a late fee. Additionally, if you make too many late payments, your regular interest rate could go up considerably.
The Credit CARD Act of 2009 addresses this and directs the Consumer Financial Protection Bureau to establish a cap on personal card late fees. This cap, adjusted annually, is currently set at $27 for your first infraction and $38 for another late payment within six months. Penalty APRs are reverted to your regular rate after six months of on-time payments.
Again, business card issuers can choose to ignore these regulations. Their late fees can be higher than the consumer cap, and penalty APRs can stay in place indefinitely.
Application of Payments
Historically, each credit company had the discretion to apply your monthly payments to your card balance any way they chose. For example, let’s say you had multiple APRs for:
- Balance transfers
- Promotional rates
- Your regular interest rate
Your card company would likely have applied your entire monthly payment to your lower interest charges first, effectively charging you more in interest for a longer time.
Following the passage of the Credit CARD Act of 2009, the government requires card issuers to apply payments made above the minimum due to the highest interest portion of your balance.
Conversely, business card companies can apply payment remittances in any way they choose. Suppose you have a lower rate for balance transfers but a higher APR on purchases or cash advances. In that case, business card issuers may apply payments in a way that increases your credit card debt, especially if your business credit card is based on personal credit.
Choosing the Right Card for Your Business
When weighing the pros and cons of a business credit card vs personal card, remember that consumer protection laws are more robust for personal credit cards; yet, these differences don’t outweigh the business card perks for many companies. For example, if you want a business account that lets you issue employee cards or establish a business credit profile, a business card may be a better choice.
If your business is new and your personal credit is bad, neither card type may be an option for you. Most lenders screen credit card applicants based on your firm’s track record or the ability of the business owner to personally guarantee the debt.
For example, if you’re seeking a business credit card not tied to personal credit, your options may be limited unless your business has strong financials or existing credit history.
What is the Revenued Business Card?
The Revenued Business Card is not a credit card; it’s a purchase of future receivables and utilizes revenue-based financing to provide a prepaid debit card. Although not a credit card, the Revenued Business Card can be used for purchases in store or online, similarly to a business credit card. Funding is delivered on a just-in-time basis as card transactions occur. Instead of looking at traditional factors like a personal credit score or business credit score, Revenued looks at your business revenue to determine eligibility. Because of this, it’s ideal for those looking for business credit cards for fair credit or seeking to avoid tying business credit card debt to their personal credit profile.
Revenue-Based Financing Works Differently
Traditional lenders like banks and other credit card companies look at several different factors when determining how much credit a business deserves. Usually, a large part of their decision-making is based on the personal credit history of the business owner. Because of this, many business owners who have poor credit are unable to access capital through those companies. This is true even if their business is producing revenue or if the primary reason their personal credit score is poor is because they’ve used their own funding resources to build their business.
Revenue-based financing works differently. Instead of determining eligibility based on a business owner’s personal credit score, Revenued looks primarily at the revenue of the business itself. We purchase a portion of your future receivables at a discount in exchange for providing working capital to you when you need it fast.
Unlike many credit cards, the Revenued Business Card does not require a hard credit inquiry, so there is no temporary dip in the credit score of the business owner. Additionally, the card’s spending limit grows with your business’s revenue, making it a solid alternative to traditional small business credit cards with fair credit requirements.
https://www.citi.com/credit-cards/understanding-credit-cards/business-vs-personal-credit-cardshttps://www.revenued.com/articles/business-credit/how-do-consumer-protections-for-business-credit-cards-and-personal-cards-differ
