Small business owners spend a portion of each day making crucial decisions. Luckily, deciding whether to get a business credit card is simple for two reasons. First, it allows you to separate your business and personal expenses, which is essential when completing your taxes. Second, it’s a powerful tool when managing your company’s cash flow.

The harder decision is choosing which card is right for you and your organization. With a slew of options available, what should you look for in a business credit card? Before you start your search, take a few moments to learn the key differences between business and personal credit cards.

How Business & Personal Credit Cards Differ:

Your business credit card will function the same as the personal cards already in your wallet. However, there are some notable differences worth pointing out.

• Credit Limits: Business credit cards typically offer higher credit limits than personal cards. With a personal credit card, your limit is based on your income. In contrast, your business credit limit is typically determined by your company’s revenues (which will often be much greater).

• Interest Rates: The interest rates for your personal credit cards are primarily determined by your individual credit score. Likewise, a business credit card’s interest rate is generally based on your business credit score. If your company is new or this is your first business loan, you’re more likely to receive a higher interest rate. That’s ok. Manage the card responsibly and you could qualify for lower rates down the road.

• Different Rewards: When researching credit cards, you’ll notice the rewards programs are geared more toward businesses. In addition to earning cash-back or reward points, it’s common to find additional perks, such as discounts on car rentals, hotels, business services, etc.

• Applying: Your personal credit card is linked to your Social Security Number (SSN). A business credit card will be linked to your Federal Tax ID or EIN (Employer Identification Number). If you’re a sole proprietor, the lender may also use your SSN to pull your personal credit report.

Is Your Personal Credit Score a Factor?

A common concern among business owners is whether a business credit card will affect their personal credit. The answer: maybe. Unfortunately, it’s not a clear-cut answer because it will depend upon your business structure and the credit card issuer.

Consider the following examples:

If you’re self-employed, lenders will commonly use your personal credit score when approving you for a business credit card. The same is generally true if your business is relatively new.

Lenders report your personal credit history to the three major consumer credit bureaus (Equifax, Experian, and TransUnion). Likewise, lenders report your business credit history to the three major business credit bureaus (Experian, Equifax, and Dun & Bradstreet).

Some credit card issuers will report your business credit history to both business and consumer credit bureaus. Others only report to the business credit bureaus. While your information being reported to both types of credit agencies might sound unfair, it can be a significant benefit for several reasons:

• If you manage your business credit card responsibly, the good marks will help boost your personal credit score.

• As mentioned before, business credit cards typically have higher credit limits. The added available credit will improve your credit utilization ratio (CUR), again helping improve your personal credit score.

Choosing the Right Business Credit Card:

There are many features and benefits of business credit cards. When deciding which card will best serve your company, begin by listing how you plan to use the card.

• Are you primarily focused on keeping business and personal expenses separate?

• Do you need a higher credit limit for larger purchases like inventory management?

• Is your goal to give yourself more lead time on vendor invoices and other cash flow management uses?

Once you define how you plan to use your business card, you’re ready to start identifying the features that will best serve your organization.

• Interest Rates: Your top priority as a business owner is to be profitable and end the year with a solid bottom line. Securing the lowest interest rates possible will help you accomplish this feat.

• Rewards: Earning cash-back or rewards can be fun, but don’t let it be the guiding light in your decision-making process. Rewards cards tend to have higher interest rates, which could eat away at your profits if you cannot repay the balance in full monthly.

• Business Perks: Many business credit cards will have industry-focused perks. For example, some cards offer discounts on rental cars, office supplies, shipping costs, business services, etc.

• Credit Limit: If you plan to use your business credit card for large purchases, such as inventory or materials, seeking a card with a higher limit might be your focus.

• Annual Fees: It’s pretty easy to find a business credit card without an annual fee. However, some people find the annual fee is worth the price. For example, if a credit card offers 15% off rental cars and your employees travel frequently, this perk could outweigh the cost of the annual fee.

• Other Fees & Penalties: It’s always wise to review all fees and penalties before applying for a credit card. If you’re carrying a large balance on your card and accidentally miss a payment, you don’t want to be surprised when your interest rate jumps significantly.

• Employee Cards: Do you have employees who you would like to have access to the business credit card? Being able to assign employee cards and spending limits could help you keep track of expenses and simplify purchasing.

• Personal Credit: If you’re worried about your business credit card being linked to your personal credit report, contact the lender prior to applying. Ask if they report to both consumer and business credit bureaus or just the business agencies.

We’re Here to Help!

Finding the right business credit card for your organization will take a bit of time. And that’s ok. You want to ensure you’re choosing the card that matches your spending goals and needs.

If you’re interested in learning more about our low-rate business credit cards, we’re here to answer all your questions. Please stop by any of our convenient branch locations, visit our website, or call 540-389-0244 to speak with a team member today.

Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.