4 ways business credit cards are different from personal ones.

Image source: Getty Images

If you’re considering getting a business credit card, understand these key differences.

Main points

• Business credit cards can be a valuable tool for small businesses and anyone earning extra income.
• With a business credit card, things like fraud protection and late fees are up to individual card issuers rather than federal law.
• A business credit card can help your company build credit, just as a personal card can help an individual do so.

Many small business owners can benefit from opening a small business credit card. Some cards pay bonus rewards on business spending, offer business-related benefits and may offer higher credit limits. Business cards work the same way as personal ones in that you open, withdraw money and pay your balance. But there are also some key differences. There are four of them.

1. Consumer protection laws are not always enforced.

Regular credit card customers may not be aware of it, but several laws are in place to protect their rights. These protections do not apply directly to business cards, which means some cardholders may be at risk.

Fair Credit Billing Act (FCBA)

The Fair Credit Billing Act provides protection for non-business credit card customers in the event their card is lost, stolen or fraudulently used. As long as you report the loss, there is a limit on how much you can pay. Business credit cards do not automatically carry fraud protection, although many card issuers include these protections.

Credit Card Liability, Responsibility and Disclosure Act (Credit Card Act)

The Credit Card Act of 2009 was a powerful piece of legislation designed to protect consumers from unfair practices by card issuers. For example, card companies must give you 45 days notice before increasing the APR on your account, and only new purchases will be affected by any rate increase. It also limits the amount of late fees you can pay.

Many of them Best business credit cards Provide these protections. But they are not required by law to do so. Check the terms carefully to understand what late fees are, how penalty APRs work, and what the card issuer’s policies are regarding rate increases.

2. Credit reporting and credit construction

Most customers report credit card activity to the three credit bureaus. Cardholders can build credit by making on-time payments and limiting their total balance. Your personal credit score plays a role when applying for a business credit card. Card issuers will run a strict credit check on whether you are responsible for that account.

But once the account is opened, positive activity is usually only reported to the business credit bureaus. This will contribute to your business credit history. The exception here is any late payments or delinquencies. These can affect both your personal and business credit – and if the business fails, you will be personally liable for any debt.

3. You may qualify for a higher credit limit.

Credit limits on a business credit card take into account your personal credit score, business income and income. This means you can get a higher credit limit on a business card. If you’re looking to finance a large purchase, that higher limit may help, especially as it can be challenging for some small businesses to qualify for a loan. Look for a card with a 0% APR and try to pay off the bill before the promotional period ends to avoid interest charges.

4. Reward categories and benefits

Top business credit cards pay big bonus rewards for business expenses like phone bills, advertising and office supplies. If you travel a lot for work, perks like lounge access and additional travel insurance can make your card more attractive.

Maximize rewards by focusing on cards that reward your spending and business activity. If you don’t do a lot of work internationally, for example, eliminating foreign transaction fees may not be as effective. But if you spend a lot on advertising and office expenses, your ability to earn bonus rewards can be lucrative.

Business cards can help small businesses manage their finances.

It’s worth noting that you don’t need to own a traditional business to apply for a business credit card. If you are a sole proprietor or have a side hustle that brings in extra cash, you may qualify. And if you have excellent credit, you may qualify for a card with additional benefits.

One big benefit of using a business card is that it can help you separate your company expenses from your personal expenses. In fact, if you use your business card for personal expenses, it can come back to bite you. Most cards won’t allow it, and in the worst case scenario your card issuer may close your account.

Understanding the difference between a business and personal card will help you choose the right card for your situation. Remember that card issuers do not have to extend the same level of consumer protection, but many do. So check the terms of use before opening an account.