September 29, 2022

A guide to business credit cards vs personal credit cards


Starting and running a small business comes with its fair share of challenges. These range from acquiring the funding to cover operational expenses to managing scale. Somewhere in the middle of all that is the need to build business credit. Loans and LOCs are one way to do that. Another is business credit cards.

In this article, we’ll explain how they work.


What is a business credit card? 

Business credit cards are cards issued to business owners that have the business name printed on them. They come in different forms, including business credit cards for startups. Spending limits are typically higher than what’s available for personal credit cards. SMBs can use them for all business expenses, including inventory purchases.


Obtaining a business credit card is a big step for startups because credit card companies need to see a certain level of consistent business income before they’ll approve an application. 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.   


Who do business credit cards serve? 

A business credit card is a good tool to track business expenses and separate them from 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. It’s tough to separate them on a personal card.


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 for that dilemma in the sections below.    


Should you apply for a business credit card? 

Entrepreneurs and founders should apply for a business credit card as soon as their company matures to the point where consistent revenue is coming in. 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 card holder’s personal credit score doesn’t come into play. It will be checked during the application process, so it’s best not to apply if your personal score is low. Work on improving that before submitting.


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.      


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 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 affect a company’s 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. 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 of a personal card approach.


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 towards 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.


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 on. This can be a dilemma for business owners because they’d prefer to use their business credit card for these expenses. Business credit card issuers have responded by offering better rewards packages.


You may also find that business credit cards have more rewards 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.


This is a good time for us to emphasize that 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.     


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 spend 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.

Take our interactive demo today.

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Are there separate credit scoring systems for my personal and business account?

Yes. Dunn and Bradstreet, Experian Business, and Equifax Business all have separate scoring models set up specifically for businesses. Business credit card issuers report to these three. Personal credit card issuers report to Experian, TransUnion, and Equifax. Those reports are used to calculate your personal credit score.   

Will my business credit card affect my personal credit score?

Some business credit card issuers report to both business and personal credit bureaus, so the activity on your business credit card could affect your personal credit. Even if they don’t report payment activity, they will report negative actions like late payments and defaults. You’ll also see a slight dip in your personal credit score when you first apply for a business credit card.  

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