Whether you love or hate credit cards one thing is likely, you already use them or are quite likely to do so, eventually. And while we’ve covered, many times, the topic of credit card debt and how best to manage it, we’ve never really compared the benefits of using business credit cards, rather than standard consumer credit cards.
First things first: what’s a business credit card? Business credit cards, also called small business credit cards or professional cards, are credit cards issued with a company name emblazoned across the front. They have the same branding and usability as garden variety credit cards, like those issued with the Visa, MasterCard, Discover and American Express logos. In fact, unless you knew what you were looking for, you probably wouldn’t even notice the difference.
It probably doesn’t surprise you but you don’t actually have to have a small business in order to get a small business credit card. Many issuers will gladly allow consumers to apply without actually requiring proof that a business exists, such as your corporate tax identification number or a copy of your articles of incorporation. The process is pretty much the same as applying for any other type of credit card.
Small business credit cards in good standing don’t typically report to the consumer credit reporting agencies, Equifax, Experian and TransUnion, although there are exceptions. This means any debt you may incur on the card isn’t visible to other lenders or credit scoring systems. This is attractive for consumers who want to keep credit card debt off their credit reports as a way to maintain solid credit scores. And, it provides a method for small business owners to keep business expenses off of their personal credit reports.
Credit limits on small business credit cards can also be much higher than those on consumer credit cards. Credit limits on consumer cards don’t normally get much higher than $35,000, unless you’re willing to provide proof of your impressive income. Finally, small business credit cards can easily be used for personal purchases. There is no “usage police” that ensures that you’re actually using your card to fund business operations.
Here’s where it gets tricky: small business credit cards do have several cons, which may or may not dissuade you from checking them out. First and foremost, when you apply for a small business credit card you are probably going to have to agree to be personally liable for the debt.
This means when you apply the credit card issuer is going to pull your personal credit report from one of the Big Three and your FICO score in order to assess your risk. And because you’ve agreed to be personally liable, if you default the credit card issuer will almost certainly report it to your personal credit reports. Finally, any collection activity, including litigation, can be focused on you the person rather than you, the business.
Remember the CARD Act of 2009? That’s the law that gave us the 21 day grace period, the 45 day advance notice of new fees, and no credit cards for kids under 21 without a co-signer or an income. That law and all of its protections apply to consumer credit cards, not small business credit cards. This is rightfully in the “con” category, but I wouldn’t let it keep me away from small business credit cards. Most of the CARD Act provisions protect consumers who, frankly, don’t do a good job managing their credit card accounts. If you’re a responsible user of plastic then you didn’t need the CARD Act protections to begin with.
And finally, because the small business cards don’t typically report to the consumer credit bureaus, they’re not going to help you to build or rebuild solid credit scores. Credit card accounts, especially those with hefty limits, are GREAT for your credit scores but, alas, if a card isn’t on your Equifax, Experian or TransUnion consumer credit reports they’re not going to help you one bit.
All in all, I’m “thumbs up” on small business credit cards. Many of them have good to better rewards programs. And, the fact that I can fund my small business operations under the radar of the credit bureaus and my FICO scores is a huge plus.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.