Editorial Policy

How business cards differ from consumer cards

Miranda Marquit

November 6, 2014

Credit cards offer convenience and access to capital in a way that is hard to beat, particularly when you are a business owner looking to grow your operations.

Even though you can use a business card in much the same way you would use a consumer credit card, there are some important differences. Understand what you are getting into before committing to a business card, and realize that getting a business card is a subtly different proposition to getting a consumer credit card.

Here are four facts you should know about business cards before taking the plunge.

They don't have the same consumer protections

The Credit CARD Act protects consumers against practices such as sudden interest rate hikes and over-the-limit fees, but not business cards. While many business card issuers have voluntarily adopted policies that bring them in line with the Credit CARD Act, it's important to read the fine print, since the law doesn't hold business cards to the same standards of protection as consumer cards.

Your business card can impact personal credit

Some card issuers report both positive and negative information about business cards on the owner's personal credit history. Others may only report negative information, which means that as long as you pay on time, the business account won't affect your personal credit scores.

So, even though opening a business card account can be a smart way to keep your business and personal transactions separate, and can simplify things at tax time, you still have to be aware of the way your business finances can impact your personal finances.

Jim Salmon, vice president of business services at Navy Federal, points out that there are times when your personal credit is used when making decisions about your business credit card application and limit. “If you're a startup, your personal credit will play heavily into the decision,” he says. “If your business is established and you're looking to get a new business card, the financial strength of your business will come into play.”

Also, it's important to remember that when you get a business card, you are still on the hook financially for what you charge. “You have to be mindful of the fact that any money you borrow, you are responsible to pay back,” says Salmon. This applies even if the business fails. Also, be mindful that if you have employees on your business account, it can backfire, since you are responsible for their charges.

Business cards have great rewards

Salmon points out that one of the biggest differences between business and consumer cards is the fact that many business cards have better rewards. Programs for business cards are often more generous, but you also have to watch out for annual fees. Run the numbers to double check that the rewards you receive are worth any fees and interest you pay. For example, if your annual fee is $200 and you get 2 percent cash back, you need to spend $10,000 in a year to break even.

Since a business card can be a way for your business to establish credit and manage cash flow, paying an annual fee or interest costs associated with carrying a balance can be worth it. Better rewards can help reduce the pain of this reality.

Are you ready for a business card?

“A business card is a good idea if you get to the point where you need to start separating personal expenses from business expenses,” says Salmon. “It's also a good idea when your business is up and running and will be sustainable for a period of time.”

Once your business is up and running, a business card can take some of the pressure off your personal finances, especially if you have been using your personal credit line to pay for business expenses.

But, are you ready for a business credit card?

“A business card may be bad for someone who struggles with handling their personal credit card,” says Salmon. “It could also be dangerous for business owners who aren't fully committed to getting their business up and running and generating the income to pay back the card.”