Business cards sport features personal cards don’t have, and no rule prevents someone without a business from getting one — but watch the catches
A business credit card can be a godsend for entrepreneurs trying to manage cash flow. Some consumers, however, have found they can also benefit from using a business card even if they don’t own a business.
Though no rules prohibit consumers from getting a business card if they qualify, says Nessa Feddis, senior vice president of the American Bankers Association, there can be some downsides to doing so.
Not sure if it makes sense for you? Here are the pros and cons to help you decide.
Pro: You can benefit from more favorable terms. Business cards often have better terms than their consumer counterparts. Some cards may offer flexible payment options in recognition of the fact that many businesses experience cash-flow problems. For example, American Express’s Plum Card lets you stretch your billing cycle and get a discount for paying early. Others come with higher credit limits since businesses tend to do a higher volume of purchasing than consumers. For example, Wells Fargo’s Business Elite Card has a credit line of up to $100,000 (if you qualify, of course). By using a business card, a consumer can take advantage of these more-flexible terms; however, that comes with a caveat. It may be harder for a consumer to qualify for a business card with a very high credit limit without some business income to back their application up, Feddis says.
Pro: You can benefit from the rewards. For some, the richer the rewards the better. If a business credit card happens to offer the best rewards, why not take advantage of it? That’s the philosophy of Ian Aronovich, co-founder and CEO of Governmentauctions.org, a website that compiles information about government auctions of seized and surplus merchandise across the country. “After I accrue points, I transfer them to airlines and hotels for free flights and stays on my vacations,” Aronovich says.
Pro: It can help your personal credit score. It’s up to card issuers to determine whether they report a business card on your personal credit report and not all card issuers do, says Anthony A. Sprauve, a spokesman for FICO. (See “Popular Business Cards’ Credit Reporting Policies” below.) Of course, if an issuer reports it, “It can affect the consumer’s FICO score as any other account would,” Sprauve says. If not, if you run up a balance on a business card, that debt doesn’t factor into your personal credit score.On the other hand, when you amass debt on your personal credit card, it always impacts your personal credit rating and “becomes something that takes away from your overall capacity to borrow as a consumer,” says Joel Pruis, senior business consultant for credit reporting company Experian. While it’s never a good idea to run up credit card debt, by using a small business card that doesn’t report to the credit bureaus, you could carry extra debt without it affecting your personal credit score.
Con: It can hurt your personal credit score. Using a business card for personal purchases can also hurt your personal credit score if you run up the balance so high that you cannot pay the card off. Many issuers require a personal guarantee before approving an applicant for a business credit card, which means the cardholder is personally liable for the debt. In that case, if you default on a business card, it would then be reported on your personal credit report and bring down your score.
Con: You don’t have the same consumer protections. The Credit CARD Act of 2009 brought a number of card protections to consumers. Among them: Consumers would no longer be subject to instant rate hikes as card issuers now have to give cardholders 45 days’ notice of a rate increase for new charges. Likewise, certain fees, such as late charges and over-limit charges, have been capped. Business credit cards were excluded from the CARD Act, and do not get the same protections.
However, most card issuers have voluntarily extended the same protections to their business credit card customers, says Molly Brogan Day, a spokeswoman for the National Small Business Association. But, “if credit card companies get to the point where they’re feeling pinched or need a new source of revenue,” there’s always the chance that can change, Day says. For that reason, the National Small Business Association has urged Congress to extend the protections of the Credit CARD Act of 2009 to the small-business cards of employers that have 50 or fewer employees.
Con: Business cards can be more costly and less consumer-friendly. Business cards are designed with the small-business owner in mind, so they typically offer features — such as more detailed expense tracking and spending reports — that “might not be particularly interesting to a consumer,” Feddis says. If the business card comes with an annual fee or a high interest rate, the consumer could end up paying for features they are not even using. Consumers might find that business-oriented features, such as an online payments interface with multiple features, may be more complicated than they want.
Bottom line: There’s nothing stopping a consumer from getting a business credit card. The question is whether the perks truly give you an advantage.