Business credit cards vs personal: what's the difference?

Starting and running a small business comes with its fair share of challenges. One of those challenges is learning about the benefits of a business credit card vs. personal one. You'll also need to build business credit. And one of the best ways to do that quickly is through the responsible use of business credit cards.

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We'll cover how business credit cards work and what there is to know about a business credit card vs. personal one. And what to know about a business credit card for personal use.

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What is a business credit card? 

Business credit cards are credit cards issued to business owners that have the business name printed on them. There are different types of cards for businesses with various perks, including business credit cards for startups. Due to the nature of business expenses, the spending limits are typically higher than what’s available for personal credit cards. Small businesses can use these credit cards for most all of their business needs from inventory to equipment and utilities.

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Usually, these cards come with certain perks or benefits that are best suited for business owners. And they have other features a business might need, like the option to offer employees cards for expenses and more. These are features you wouldn't normally get with a personal credit card.

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Obtaining a business credit card for is a big step for startups and small businesses. But credit card companies like to see a certain level of consistent business income before they’ll approve an application for a business credit card. The screening process focuses on business revenue and expenses. Business owners may be asked for their tax identification number in addition to their social security number or EIN.

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Who do business credit cards serve? 

A business credit card is a good tool to track business expenses and keep those expenses separate from any personal expenses. Small business owners in the first few years of operation will often use their personal credit card for their expenses. This is risky because the IRS can deny expense tax deductions that appear to be personal. If all of your charges, both personal and business, are on one card, it gets difficult to separate them.

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Larger companies with multiple departments may also request business credit cards for department heads and purchasing managers. This can help to create a more trusting financial culture within the company. But it gets complicated when the business grows past a certain point. We’ll cover some solutions to that growth problem in the sections below.    

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Should you apply for a business credit card? 

Entrepreneurs and founders should apply for a business credit card when they officially start their business. As soon as their company matures to the point where consistent revenue is coming in and they have expenses to charge. Prior to that, most credit card companies will only approve personal credit cards. If that’s your situation, use a separate personal card for business expenses and keep receipts for all purchases.

Most business credit card issuers report activity to commercial credit bureaus like Dunn and Bradstreet and Experian Business. But that doesn’t mean the cardholder’s personal credit score doesn’t come into play. That personal credit will be checked during the application process. So it’s best not to apply if your personal score is low. Instead, work on increasing your personal credit score before applying for a new credit card. You can do this by paying off your balance in full each month and by making payments before they're due.

Companies with a more established track record and higher revenue might want to consider corporate charge cards in lieu of traditional business credit cards. These are cards that facilitate automated expense reports and reimbursement, two of the challenges of scale we referred to above. Read the final section of this article to learn more.      

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Business credit card vs personal credit card: 5 important differences 

While business and personal credit cards function almost identically, there are differences. The most obvious is that with a business credit card, the card displays the business name. That adds credibility and makes it simpler to incorporate the card into business budgeting software. Here are some other “behind the scenes” elements of business credit cards you should be aware of:   

1. Credit limits and payment terms

Entrepreneurs applying for their first business credit card may only be approved for a credit limit of a few thousand dollars. That will go up quickly if you responsibly manage your spending and monthly payments. Credit card issuers understand that business expenses are typically higher than personal expenses, so they have a different scale when it comes to limits.

Payment terms may also be different with business credit cards, so read the fine print of the terms and conditions carefully. Some business credit card issuers require payment of the entire balance each month. That can your financial performance if you’re using the credit card to purchase inventory that will take several months to turn over.   

2. APR terms

The annual percentage rate (APR) of a credit card is not the same as the interest rate of a credit card. That’s a common misconception. The APR includes the interest rate, but it also includes fees and monthly charges, if there are any. Keeping that in mind, finding a business card with an introductory APR of 0% is rare. That type of promotion is more common with personal credit card promotions.

That being said, rare doesn’t mean non-existent. But any 0% APR offer you find is likely to be short, a few months at best. What you might find is extended interest-free periods. Personal credit cards offer interest-free periods of up to 21 days. Certain business credit cards will extend past the one-month mark. That’s a great incentive for inventory purchases.   

3. Reporting policies 

You won’t hear this often, but the feeling of finally having your business show up on a Dun and Bradstreet report can be utterly euphoric. It means that you’ve achieved the first milestone toward legitimacy. One of the ways to get there is to acquire and use a business credit card. The credit card issuer will likely report your activity and payment history to D&B. Then your credit will begin to build.

Dun and Bradstreet isn’t the only commercial credit bureau. Experian and Equifax also have business reporting divisions. Business credit card issuers could report to one or all three. Some also report to personal credit bureaus since a social security number is always attached to a business credit card account. You should ask about this when you apply.

4. Bonuses & rewards

Business credit cards are often used for meals and entertainment, airfare, hotels, and other expenses that personal credit card issuers offer rewards points and incentives for. This can be a dilemma for business owners because they’d prefer to use their business credit card for these expenses but then they miss out on the rewards. So some business credit card issuers have responded by offering better rewards packages.

You may also find that business credit cards have more reward categories. It’s not uncommon to find bonus rewards on phone bills, online advertising, and office supplies. If you’re looking for rewards on grocery or drugstore purchases, you might want to use a personal card. Just don’t try to write them off as a business expense when you file taxes.   

5. Liability protection

Personal credit cards are protected by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). Business credit cards are not. One of the stipulations in that legislation is that credit card companies cannot raise interest rates without warning. That only applies to personal cards. Business credit card rates can go up any time. Always check the specific conditions of your card instead of assuming it's similar or the same as your personal card terms and conditions.

Remember, business credit cards are not the same as corporate charge cards. In the next section, we’ll explain what corporate charge cards are and how they compare to business credit cards, particularly when it comes to financial planning and analysis. We’ll also talk more about the challenges of scale and how to overcome them.    

Factors to consider when choosing between personal vs business credit cards

When choosing between a business credit card and a personal credit card, it’s important to consider your goals for using the card. Here are some key factors to consider:

• Purpose: What do you plan to use the card for? Are you using it to finance business expenses or manage everyday purchases? Knowing this will help you narrow down your options.
• Credit limit: How much credit do you need? Would a higher credit limit help finance business expenses, or can you get by with a lower limit for managing everyday purchases?
• Rewards: Do you care about earning rewards from your credit card? If so, compare the rewards programs offered by different cards.
• Business credit score: Do you need the card to help you build business credit? If so, you’ll want to look for a card that reports to the major business credit bureaus.

Tips for tracking business expenses

Once you’ve selected a business or personal credit card, staying on top of your expenses is important. Here are some tips for tracking business expenses:

• Separate accounts: Keeping your business and personal finances separate is important. This is especially critical when it comes time to file your taxes or provide spending and revenue reports to potential investors. Set up separate accounts for each, and use the appropriate card for business expenses.
• Record keeping: Business credit cards can help you keep records of all your business expenses. This simplifies the process of reconciling your accounts at the end of the year. An accounting system can take this a step further by allowing you to easily review spending patterns, identify problem areas, and create budgets.
• Choose between cash and accrual accounting: Consider whether you want to use cash or accrual accounting for your business. Cash accounting records expenses when the money is paid, while accrual accounting records expenses when they are incurred.
• Connect your financial accounts: Connect your financial accounts to the accounting software you’re using to get real-time insights into your business finances.
• Manage your receipts: Keep track of all your business receipts and store them in a secure location. This will make it easier to track expenses and claim deductions during tax season.
• Use an expense app: Though not essential, using an expense app can help you keep track of your business expenses on the go. For instance, if you need to track mileage for work, an app can help you record it quickly and accurately.

Get ready for your next step with Ramp 

Let’s step it up to the next level. Some business credit card companies offer free employee cards with customizable spending limits, but those aren’t spending controls. They simply put a limit on how much an employee can spend, not where they can spend it. Ramp corporate cards can do both. They’re the next step in P&L management for your company.

To put that into perspective, business credit cards can be integrated into accounting software to track expenses. But that doesn’t provide a receipt backup or allow the company to view expenses in real-time. The best integrations send data the following day. That’s too late to correct spending behavior that could be costly to your firm.

Ramp allows you to set spending limits, select specific vendors where corporate cards can be used, and see expenses on a real-time dashboard as they occur. Our system also reimburses automatically, and no expense reports are required because everything is tracked internally as it happens. Traditional business credit cards won’t do that for you.

Think about the challenges of scale for a moment. As a company adds infrastructure and employees, spending gets more complex. How do you track it all? A budget and an expense policy are simply guidelines if the system can’t enforce them. Ramp is the system that can do that for you.

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Take our interactive demo today.

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