Should You Ever Use Your Personal Credit Card for Your Business Expenses?

Should You Ever Use Your Personal Credit Card for Your Business Expenses?

Credit cards can be an important part of the financial workings of a small business. They can offer a convenient way to manage cash flow, keep track of expenses and earn perks and rewards — all while often being easier to get than other types of financing like loans.

If you’re a small business owner, you may recognize the benefits of having a credit card for business expenses and financial management, but you have a choice: whether to use a personal credit card or business credit card for business expenses.

While there are pros and cons either way, the good news is that it can be perfectly acceptable to use a personal credit card for your business — as long as you follow certain best practices.

The choice to use a personal card or a business card will depend on your circumstances and the needs of the business. Here are some factors that can play into your decision.

What Defines a Credit Card as Personal or Business?

For small businesses, the line between a personal credit card and a business card can be blurry. Consider these examples:

  • You can apply for a personal credit card under your own name, using your own credit history and income, and use the card for business expenses.
  • You can apply for a business credit card as a sole proprietor — meaning there is no legal separation between you and your business — using your personal social security number.
  • You can apply for a card for your business using an employer identification number (EIN) that is based on your business’ credit history.

In any case, you may be asked to personally guarantee payment for many small business credit cards. And your business credit card application may be evaluated based on your personal credit, particularly if your business is not yet well established with its own credit history or generating much revenue.

If you have poor personal credit, it may affect your chances of being approved for a business credit card — although there are business credit card options for those with less-than-stellar credit. The flip side is that if you have good personal credit, you may be approved for a business credit card even if your business is not yet bringing in revenue (and able to pay off large purchases).

Personal Credit Cards Pros and Cons

Consumer Protection

The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 created legal protections for consumers, including limits on fees and interest rate changes. These rules are not required for business credit cards, although some business card issuers may voluntarily offer the same kinds of protections.

Rewards

Personal credit cards may offer rewards that are more attractive to you and/or your business, such as the opportunity to earn travel points. It can pay to shop around for a credit card that offers the rewards most valuable to you.

Personal Credit Profile Impact

Using a personal card for business expenses can affect your personal credit score. Missing payments, paying late or using too much of your credit can all negatively impact your personal credit, even if the expenses are strictly for your business.

Business Credit Cards Pros and Cons

Building Business Credit

Using a business credit card responsibly can help you build business credit — and having a strong credit profile credit is a definite boon for your business. Your business credit is an important factor in whether your business is approved for loans and lines of credit, as well as what terms you can qualify for. It can also affect approval and terms for vendor trade accounts and insurance rates. Your business credit can also affect the image of your company and influence how potential partners and customers evaluate you.

Employee Cards

One distinct perk of business credit cards is that you can get extra cards for employees to use for company purchases. This makes the purchase process easy for employees as well as offering a way to monitor and control spending.

Business-Oriented Rewards

Business credit cards often offer perks specifically designed for businesses, such as rewards for spending on office supplies, shipping or advertising. The value of these rewards will be different for every business depending on which categories see most of your spending.

Credit Limits

Business credit cards can come with higher spending limits than personal cards, which can be a distinct advantage as your business grows.

Impact on Your Personal Credit

Many small business credit cards require a personal guarantee from the applicant. And if you apply for a business credit card as a sole proprietor, there is no real separation between yourself and the business anyway — you’re still personally responsible for the company’s debts. This means that if you are unable to pay off the debts on your business credit card, you pay late or you miss payments, it could affect your personal credit score.

Business credit card issuers have various policies about reporting card activity to business and/or consumer credit bureaus. Many do not report your business credit card activity to consumer credit bureaus unless the account is seriously delinquent. However, when you apply for a business credit card, it may show up as a hard inquiry on your personal credit profile, which could affect your credit score.

Best Practices for Personal and Business Cards

Whether you are using a personal or business credit card for your business expenses, some best practices apply to maximize the benefits and keep your credit in good shape:

Separate Business and Personal Expenses

Whichever card you decide to use for business expenses, make sure you use that card for business only. Having both personal and business expenses charged to a single card results in messy records and can make it harder to prove the expenses were indeed for business. Instead, reserving one card for strictly business expenses makes record-keeping and financial management a lot easier.

Pay Your Bills on Time

Paying your credit card bills on time every time can help you build good personal and business credit, especially if you have a card that reports to both consumer and business credit bureaus.

Don’t Use Too Much of Your Credit

Racking up large bills can negatively affect your credit score, both personal and business. Paying off debt amounts promptly as you go can help prevent this.

Which credit card do you use for business expenses? Let us know on Twitter @Revenued_com.

Jennifer Sokolowsky writes about finance, legal and tax topics for publications and companies including The Puget Sound Business Journal, Avalara, and Avvo.
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