It’s often not simple to decide whether you should use a business or a personal credit card. Both have advantages and disadvantages, and, as with all cards, there are always people who tend to treat them like quick no credit check loans which have to be repaid sometimes in a very, very distant future – so any expense can be charged today, without worries. Obviously, this is not the case, and making a wrong decision will have severe consequences.
Business Credit Cards for Employees
Some companies ask their employees to open a business credit card for business-related expenses – particularly when the jobs require a lot of traveling. This should be a straightforward case, as the employee should use the card only for expenses incurred on the job, and the company should pay everything, making sure that no balance is carried over at the end of the month.
Unfortunately, things are not always perfect. When you apply for such a card, it will be put in your name, so the lender will check your credit score, and establish the interest rates accordingly. If the employer fails to make a payment on time, this will go on your record. To make things even worse, many such business credit cards are not reported to the credit bureaus, so they will not help your credit score – but they will cause significant damage if somebody in accounting makes a mistake and the card defaults.
If you are not satisfied with the employer’s policies, you may want to avoid the business card. Offer to use your personal card instead, and to bring proof of all expenses separately. Alternatively, you can take the business card, but keep an eye on the debt accumulating on it, making sure it remains within reasonable limits – so that you can pay it off in case of an emergency, and ask the company for a reimbursement later.
Business Credit Cards for Small Business Owners
For small business owners, a business credit card is a great tool to help insure that personal and business expenses do not mix. However, if you’ve agreed to personal liability when you applied for the card, any case of late payment will go on your personal credit report. This is almost always the case for start-ups, as lenders are quite reluctant to provide a card without personal liability when the company is new and does not have any credit history.
In addition, business credit cards follow different rules than personal ones. The most important difference is that the lender does not have to give you an advance notice when fees change, or a 21-days grace period, so you may end up with a more expensive card than initially anticipated.
Business cards also have higher limits – for example, if you’d qualify for a limit of $500 on a personal card, you can hope to obtain $5,000 on the business card. Of course, this also means that there’s a high risk of piling up debt without even noticing, particularly when the business is new, and you don’t know exactly how to budget your expenses. It’s very easy to max out all the cards, take a few personal loans, switch to payday loans and other no credit check loans when you can’t make ends meet, and end up close to bankruptcy before you even know it.