If you’re a business owner or a freelancer, you’ve probably heard that it’s a good idea to get a business credit card. However, if you’ve been using your personal card to pay for business expenses with no trouble, you might be wondering whether this is really necessary.
The answer is, yes, if you own your own business or work for yourself, getting a business credit card is a good idea. To understand why, you need to understand what exactly a business card is and how it’s different from a personal card.
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What is a business credit card?
A business credit card is a credit card that’s intended for commercial use by a business rather than for personal use by an individual.
There are several differences between business and personal credit cards (for instance, business cards usually have higher credit limits and don’t always appear on your personal credit report), but you can use them in the same way.
Business credit cards are available to companies of all sizes. They have several benefits:
- Separating your finances: If you’re a business owner, using a business credit card is a good way to keep your business and personal finances distinct, which is good for both accounting and legal reasons. 1 We’ll explain these in more detail below.
- Building credit: Just like a personal credit card, using a business credit card will improve your company’s credit profile, which will make it easier to qualify for other lines of credit and loans in the future. It will also improve the terms (e.g., the interest rates) that you’ll eligible for when you apply.
5 reasons why you should get a business credit card
In more detail, here are several reasons why you should consider getting a business credit card if you’re planning on making purchases for your company.
1. It’s easy to qualify for, even as a freelancer or startup
Business credit cards are available to non-traditional business owners. If you’re a freelancer, self-employed, or you own a startup, you can qualify for a freelancer credit card or small business credit card. You don’t have to be formally incorporated or have a storefront or office.
It’s also possible to apply for a business credit card if you’re a new company and don’t have much revenue yet. You’ll have to report your lack of revenue on your application, but that won’t necessarily disqualify you. Some issuers may ask you to include projected (future) revenue.
Note that, if you have a new business with no credit history or revenue, many card issuers will review your personal credit as part of your application, since if your business fails you’ll become personally liable for your debts.
Check out these credit cards, all of which are suitable for freelancers or people who are just getting their businesses off the ground:
2. It helps you establish business credit
Getting a business credit card is one of the first steps toward establishing a credit history and obtaining a credit score for your business. And getting a business credit score is just as important as building your personal credit—it affects many different aspects of your business’s financial health.
For instance, your business credit score will affect its eligibility for new lines of credit and loans, as well as the terms you’ll get on them when you do qualify. It will also affect you in other, less obvious ways, e.g., by influencing how much your company will have to pay for insurance.
3. It’s much better for business use than a personal card
Many small business owners use their personal credit card for business expenses. Even though this is common practice, it’s not the best idea.
A dedicated business credit card is better for several reasons:
- Higher credit limit: Business credit cards tend to offer higher credit limits than personal cards do. It’s easy to max out your personal credit card when using it for business expenses, which will damage your credit score by boosting your debt-to-credit ratio too high.
- Protects your assets: As mentioned, it’s good to keep your personal assets (including your credit and bank account) separate from your business assets. If you use them interchangeably, then legally, your personal assets will be on the line if someone sues your business.
- Easier accounting: Legal liability aside, maintaining a clear line between your business and personal funds also makes bookkeeping much easier. This will help you set a budget, track your tax-deductible business expenses, and file your taxes with less of a headache.
4. You can earn business-specific bonuses
As business credit cards are intended for company expenses, when you use one, you can earn business-specific rewards that aren’t available to consumers. For instance, you might be able to get cashback rewards when you purchase ad space.
You can apply for two different kinds of business rewards cards:
- Flat-rate cashback cards: If your expenses aren’t concentrated in any particular category, you can apply for a “flat-rate” card that gives you the same rewards on every business purchase.
- Bonus category cards: A bonus-category card gives you rewards when you use it for particular types of expenses, such as travel or buying office supplies. When you apply for this type of business credit card, you need to figure out what types of purchases your company spends the most on and apply for a card that fits your needs.
Common bonus categories include:
- Travel
- Gas
- Restaurants (for business lunches, etc)
- Office supplies
- Internet, cable, and phone services
- Shipping and postage
- Advertising
5. You can qualify for other business-related perks
If your business requires you to do a lot of traveling, you can look for cards that provide other perks that go beyond cashback rewards.
For instance, some business cards come with insurance coverage (e.g., travel, rental car, and cell phone insurance), as well as access to airport lounges and hotel upgrades. Most personal cards don’t come with these types of perks.
Are there any downsides to getting a business credit card?
Although we recommend getting a business card, there are a few drawbacks that you should consider before applying for one.
We cover the main drawbacks below:
1. They can be more expensive than business loans
When it comes to business credit, the main alternative to a credit card is a business loan. Business loans are installment loans, which means they’re one-time loans that you receive in a lump sum and then pay back according to a fixed schedule.
Credit cards of all types almost always have higher interest rates than loans, which means that if you aren’t able to pay them off quickly, you’ll pay more in interest overall. The advantage is that you can use them as often as you want, and you can pay them off as soon as you’re able.
If you’re planning on regularly making small to moderate-sized purchases, a business credit card is definitely the way to go, but if you just want to make a single large purchase, you should consider getting a loan instead. (Alternatively, you can look for a card with a 0% APR introductory period, which means that for the first few months that you have it, you won’t have to pay anything in interest at all.)
2. Your card will probably require a personal guarantee
As we’ve said, most small business credit cards require a personal guarantee, which means that you’ll be personally liable for the debt on the card if your business fails.
This doesn’t mean you shouldn’t get a business card, but it does mean you should use it carefully. Never rack up more debt than you’d be able to pay off.
3. They offer less legal protection than personal cards
In general, consumers enjoy more robust legal protections than businesses do, at least when it comes to their credit card use.
That’s because most consumer credit laws don’t protect business credit cards. Here are a few examples of laws that apply to consumer cards and not business cards:
- CARD Act: The 2009 Credit Card Accountability Responsibility and Disclosure Act regulates consumer card issuers, limiting when they can raise their interest rates and obligating them to be transparent about their rules and terms. The CARD Act does not apply to business card issuers.
- FCRA: The Fair Credit Reporting Act gives consumers the legal right to dispute items on their credit report that they think are inaccurate or unverifiable. It doesn’t apply to business credit items, so if your card issuer reports something incorrect, you have no legal way to compel them or the credit bureau to investigate the issue (although if you ask, they might be willing to do it anyway).
4. They can impact your personal credit
Using your business credit card irresponsibly (e.g., by maxing it out and missing payments) can damage your personal credit score. This is because, although usually card issuers report your business credit activities to special consumer reporting agencies, some also report them to the consumer credit bureaus that compile your normal credit report.
In fact, even the act of applying for a business credit card can impact your personal credit. That’s because some issuers will check your personal credit by conducting a hard inquiry, which will lower your credit score by a few points.
What type of business credit card should I get?
There are two types of business credit cards: small business cards and corporate cards. If you can get a corporate card, you should, but they’re harder to qualify for than small business cards.
Small business credit cards vs. corporate cards: what’s the difference?
Small business credit cards are exactly what they sound like: credit cards meant for small businesses. Corporate credit cards are meant for much larger companies with more revenue.
The table below breaks down the main differences between these two types of cards:
Differences between small business and corporate credit cards
| Small business credit cards | Corporate cards | |
|---|---|---|
| Company size | Small businesses | Larger companies (typically with revenue of at least $4 million) |
| Personal guarantee | Required, meaning the primary cardholder (i.e., the business owner) is personally liable any debts and fees if the company fails | Not required, meaning the company itself is liable for all debts and fees |
| Rewards | Earned by the primary cardholder | Can be earned by the business or the primary cardholder |
| Credit limit | Lower spending limits | Higher spending limits |
Almost every new business starts with a small business credit card. It’s a good idea to upgrade to a corporate card if and when your business grows. Beyond their other perks (e.g., a higher credit limit and no personal liability), many corporate cards come with special features that help you track and manage your expenses.
FAQs about getting a business credit card
If you’re considering the pros and cons of getting a business credit card, you probably have more questions. We’ve answered some of the most common ones below.
Do I need a business credit card?
You don’t absolutely need a business credit card if you’re a business owner. Getting one isn’t legally required. However, as we’ve explained above, getting a business credit card is usually a better idea than using your personal credit for business expenses.
Do I need an LLC to get a business credit card?
No, your company doesn’t need to be incorporated as a limited liability company (LLC) to apply for a business credit card, or even be formally incorporated at all. Freelancers can apply for business credit cards, and you don’t need a storefront or an office to qualify.
The requirements for getting a business credit card are usually fairly loose, although you’ll need to check with your desired card issuer to find out what theirs are.
How many business credit cards can I get for my company?
You can get as many business credit cards as you want for your company. However, while there are no limits to the number of cards you can request, having too many might hurt your credit if you’re not managing them properly.
As a rule, you should apply for however many cards you genuinely need and no more.
How long does it take to get a business credit card?
You’ll usually get approved for a business credit card within 7 to 14 days. You might also get approved instantly—the exact amount of time it takes to get a credit card of any kind depends on your lender and the details of your application.
What is the credit limit on a business credit card?
The credit limits on business credit cards tend to be higher than on personal cards, but the exact limit you’ll qualify for depends on your business’s finances and creditworthiness. 2
Do I need personal credit to get a business credit card?
You don’t always need personal credit to get a business credit card, but you sometimes do. If you’re a small business owner, the cards you apply for are more likely to require a personal credit check, which means you’ll need a good credit score of your own.
If you’re applying for a corporate card, your personal credit (or lack thereof) won’t matter—only your business’s finances will.
