The main difference between a business credit card and a personal credit card is that you can use one for eligible work expenses and the other for everything else.
If you’re a small business owner (even a sole proprietor), you can use business credit cards to cover costs such as office supplies, advertising and vendor fees. You can use your personal credit cards for everyday expenses, like groceries, clothes and bills.
Knowing the five key differences between personal and business credit cards can help you better understand these products and decide whether a business credit card is right for you.
[Read: Best Credit Cards.]
1. Business Credit Cards Often Come With Financial Management Tools
If you charge all of your business expenses to a separate, dedicated card, you could find yourself having a much smoother experience at tax time. Taking small-business tax deductions can be more complicated when you’ve combined personal and business expenses on one card.
“If you are taking deductions for your business expenses — which you should take as many deductions as you can — those things can start getting a little bit tricky,” says Maria Castillo Dominguez, a certified financial planner and founder of Valoria Wealth Management.
A business card can help you stay organized by offering you accounting features, such as expense summaries. Free employee cards are also common, and you can typically set custom spending limits on those.
If your business venture is more of a short-term thing, though, you may not feel as compelled to separate your expenses. Consider a case where you’re reselling some items on eBay, and you decide you don’t plan on making it a business.
“In that case, it might make sense to just go ahead and keep the existing finances you have and then just do some bookkeeping, let’s say in a spreadsheet, around what you’re doing with that business, since you know it’s going to be short-lived,” says Kerrie Carden, a certified financial planner and CEO of Equip Advisory, a wealth-building firm.
2. Business Credit Cards Help Build Business Credit Scores
When you apply for a business credit card, the issuer will usually check your personal credit score. As a result, you can qualify for a business credit card without an established business credit score.
If you want to take out a small-business loan or other business credit, though, you’ll want to have a strong business credit score from a business credit bureau, such as Dun & Bradstreet, Equifax, FICO SBSS or Experian.
Your business credit card issuer will typically report to one or more of those bureaus.
“Like you build your personal credit score, business credit cards can help you start a business credit score, which (will) help you with financing options in the future,” Castillo Dominguez says.
But your business credit card can affect your personal credit score if you miss payments. Also, the separate credit history doesn’t mean your personal finances are totally detached from the card account. With small-business credit cards, you’ll typically have to promise to personally repay the card balance if your business fails.
[Read: Best Rewards Credit Cards.]
3. Personal Credit Cards Have More Consumer Protections
Under federal law, credit card issuers can only increase interest rates under certain circumstances, and fees are limited. The legislation that imposes those protections, the Credit Card Accountability Responsibility and Disclosure Act of 2009, doesn’t apply to business credit cards.
“They may do things like increase the interest rate without notice,” Castillo Dominguez says.
Issuers often still provide protections, despite the lack of legal requirements. Read the fine print on the cards you’re considering, and contact the issuer if you have questions about protections.
4. Business Credit Cards May Have Higher Credit Limits
Your credit card issuer typically approves a maximum amount that you’re allowed to spend on your card. This is your credit limit.
Business credit cards often have higher limits than personal credit cards since they can also weigh in your company’s income.
5. Business Credit Cards May Have Different Rewards and Perks
Business credit cards with rewards are more likely to offer categories such as advertising, software and office supply stores. And the cards usually come with business-specific perks, like free employee cards and tools to manage your expenses.
With either type of card, you can also find options with flat-rate rewards on all purchases or strong travel rewards.
But if you’re in the market for a 0% annual percentage rate, you’ll find the best options in the personal credit card market, which offers 0% APR terms of up to 24 months.
[Read: Best Credit Cards with High Credit Limits.]
How Should I Choose a Business Credit Card?
To choose a business credit card, consider factors such as the kinds of expenses your business has, how much you spend and what kinds of fees the card charges. For instance, if your business involves a lot of international transactions, you should look for a card with no foreign transaction fee.
“I always encourage folks, work backwards from how that tool is going to be used to then choose the right tool for what you want your business to accomplish,” Carden says.
As your business evolves, your credit card needs can change — so don’t put too much pressure on yourself to pick the perfect card that you’ll have forever.
“It’s healthy to assess on an annual basis: Are the benefits or rewards that we’re getting from this card fitting for what our business does now versus what it did a year ago?” Carden says.
If you’re having trouble securing a business credit card as a new business, you may have better luck starting with the bank where you do your business checking.
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Business Credit Cards vs. Personal: 5 Major Differences originally appeared on usnews.com
