What to know before you get a business credit card

No matter what type of business you have, you might benefit from applying for a business credit card. A business credit card can be a valuable tool to keep your personal and professional finances separate, establish credit and perhaps earn rewards along the way. And you don’t need to own a large company or have employees to be eligible for this type of flexible financing solution.

Even if you’re experienced with using credit cards in your personal life, it’s important to understand that business credit cards feature some key differences compared to consumer credit cards. Here’s what you need to know before opening a business credit card. 

What is a business credit card? 

In many ways, business credit cards work like the consumer credit cards you probably already have tucked away in your wallet. Both types of credit cards are attached to a revolving line of credit and feature a maximum credit limit that determines how much you can borrow at a given time. 

As with personal credit cards, if you max out your credit limit on a business credit card, you’ll need to pay down at least a portion of that debt (plus any interest you owe) before your business can use the account for future purchases. 

Business credit cards typically feature variable interest rates that can fluctuate up and down with the market (as do personal credit cards), and those rates tend to be high. But if you pay the full statement balance on your business credit card every month, you should be able to avoid the cost of expensive interest charges. 

Who can get a business credit card? 

Qualifying for a business credit card is easier than many people believe. You might be eligible for a business credit card if you have good to excellent personal credit and fit into any of the following categories. 

• Sole proprietor
• Freelancer
• Independent contractor
• Gig workers
• Self-employed business owners
• Small business owner
• Limited liability company
• Corporation

Business vs. personal credit cards

Although business and personal credit cards look almost identical and operate in similar ways, there are some important differences you should understand about these financial products. 

• Consumer protection laws: The CARD Act provides consumers with numerous protections as they use their personal credit cards, like limitations on interest rate increases, limits on fees, and more. However, those protections don’t extend to small business credit cards (even though some credit card issuers may choose to offer them to business cardholders on a voluntary basis). 
• Credit limits: Card issuers consider both business revenue and personal income when setting the credit limit on business credit cards (along with your credit score and other factors). Therefore, business credit cards tend to feature higher credit limits compared with personal credit cards. 
• Promotional APR terms: When you qualify for a 0% intro APR offer on a new credit card, the promotional period often lasts longer with personal credit cards than it does with business credit cards. 
• Credit impact: Most major credit card issuers report account activity for personal cards to the three major consumer credit bureaus (Equifax, TransUnion, and Experian). Many business credit cards may help you establish credit with one or more of the business credit reporting agencies (Dun & Bradstreet, Equifax, or Experian). However, some issuers also report business credit card account activity to the consumer credit bureaus, especially if you fail to pay your bill according to the terms of your credit card agreement. 

Applying for a business credit card

Applying for a new business credit card is easy. In fact, there are only a few differences between a small business credit card application and a standard consumer credit card application. Nonetheless, consider taking the following steps before you apply for a new business credit card:

• Review your credit. Even though you’re seeking financing for your business, a credit card company will check your personal credit information when you apply for a small business credit card. So, it’s wise to know where your credit reports and credit scores stand before you seek new financing. 
• Correct any errors. If you discover inaccurate information on any of your credit reports, it’s important to dispute those errors with the appropriate credit bureau. Negative credit errors could damage your credit score in an unfair way. Visit the Federal Trade Commission’s website for a dispute letter template you can follow to submit a request for an investigation. 
• Research your best options. The best business credit cards require good to excellent credit to qualify for a new account. But if your credit needs improvement, a secured business credit card might be a better fit. It’s important to find the right business credit card options for your situation and apply accordingly. 
• Gather your information. On top of the personal details you would need for a standard consumer credit card application, you may also need to provide information about your business. A business credit card issuer may ask for your business’ name, structure, number of employees, annual revenue, spending needs and more. If your business doesn’t have an Employer Identification Number (EIN) from the IRS, you may be able to apply using just your Social Security number.

How to use your business credit card

In general, it’s best to use a business credit card for business purchases and personal credit cards for personal purchases. Some business credit card issuers may even have verbiage in their credit card agreements that prohibit you from using the account for personal purposes. When you put personal charges on a business credit card it can also start to complicate matters for bookkeeping and tax purposes. 

As a general rule, it’s best to avoid charging more on any credit card than you can afford to pay off in a given month. If your business falls into the habit of revolving outstanding credit card balances from month to month, the interest charges on your account can add up in a hurry. Plus, some business credit scoring models pay attention to credit utilization and a high balance-to-limit ratio might hurt your business credit score. 

Above all, it’s essential to pay your business credit card account on time every month. Late payments have the potential to lead to credit score damage — likely on both your business and personal credit profiles. Late fees and penalty interest charges can also become an expensive burden that you don’t want to have to worry about as a small business owner. 

Frequently asked questions (FAQs)