Are Personal Credit Cards Better than a Business Card for Your Business?

It’s fair to say that money is at the top of a small business owner’s list of things to worry about.

“Where will we get funding?; How will we break even?;  How will we turn a profit this year?”, are all questions you have to ask yourself when running your own business.

With all of these things whirling through your head, an extra concern should not have to be, ‘Will I have an unexpected interest rate increase on my credit card?’

Since the new credit card law (Credit CARD Act of 2009) came into effect, consumers using personal credit cards have had fewer things to worry about in terms of sudden changes and hidden costs from their credit card, and I believe that business owners can have the same luxury.

It is my recommendation that small business owners use a personal credit card for things such as funding (when they know they won’t be able to pay the balance back right away) and use a business credit card as a means to ‘transact only’.

When you get a small business credit card, the debt is not tied to the business but is actually tied to you personally.

Since you are already assuming this risk, it makes sense to capitalize on the advantages of a personal credit card.

A personal credit card offers peace of mind to a business owner who uses a credit card as a funding vehicle and therefore carries a large balance.  If you use a personal credit card for this purpose, you can rest easy knowing you will not be charged an extra $1,000 in interest because of a sudden interest rate increase on your existing balance.  For business credit cards, this is unfortunately not the case due to their exclusion from the new credit card law.

business card vs personal credit card

A business credit card may not be best for your small business.

The Credit CARD Act also provides a perk for people using personal credit cards around the way their payments are applied to their balances.  With personal credit cards, the credit card companies are required to use a payment allocation system that applies your payments above the minimum to your balance charging you the highest interest rate first, saving you money in interest charges.

Of course there are also advantages to having a business credit card, so I am by no means suggesting that they be excluded from your spending arsenal. 

Business credit cards are an excellent choice, superior to personal credit cards, when used for purchases that you know you will pay back in full at the end of the month.  When used this way, they offer many advantages such as higher credit lines and the ability to track spending from individual employees.  Therefore, it is my recommendation that you use a business credit card for convenience and purchasing power, but use it as if it were a charge card.

Using both types of credit cards to their own advantages will assure that you have the best of both worlds – with both a personal credit card as a funding vehicle and a business credit card as an efficient and powerful means of financing your business expenses.

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Editor’s Note: If you are using a personal credit card for your business make sure to track your expenses diligently.  One big advantage to a business credit card is you are separating your business charges from your personal charges which makes your accounting cleaner.  Consult a tax professional if you have any questions about the affect of expenses on your personal card.

By Odysseas Papadimitriou, CEO and founder of CardHub.com, an online marketplace for credit card offers

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Published or updated May 22, 2013.

Comments

  1. Great information. I’m trying to start up some freelance work and got a new credit card through my bank to use just for that. This makes it easier for me to track my business expenses.

  2. Thanks for the advice. I didn’t even think about the fact that business cards were not addressed in the CARD act.

    I actually have a much larger limit on my personal cards, but I have one business card with a small limit, and I actually do have a balance on it, because I didn’t want to use personal funds to pay it off (trying to make my business self-sufficient). But after reading this, I will rush to pay it off.

    Oh, by the way, it seems as if “Commentluv” isn’t working on your site.

    • Glen Craig says:

      I didn’t notice the lack of business credit card info in the CARD act either. With so many small businesses this could be an interesting issue!

  3. This is a great topic, especially given the credit crunch on small business loans has forced many small business owners to turn to credit cards. I completely agree with you “Using both types of credit cards to their own advantages will assure that you have the best of both worlds.”

    Thanks for sharing your perspective on this timely topic!

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