Can you use a personal credit card to start a business? | Credit card


Whatever type of business you want to run, you will likely have start-up costs to get it started. Unfortunately, access to business financing options is rather limited for new businesses, and you may not want to apply for a business credit card until you know your idea will come to fruition.

One option is to use one of your personal credit cards to fund your start-up business. Here’s what to know to know if it’s possible and what to consider before doing it.

Can I use a personal credit card for business expenses?

There is nothing in a consumer credit card agreement that prohibits you from using your account for business expenses. In contrast, business credit card terms and conditions usually state that you can only use the card for business purposes.

But just because you can use a personal credit card to start your business doesn’t mean you have to. Although business and consumer credit cards work the same in many ways, there are some important differences. Depending on your situation and goals, one may be more suitable for your business than the other. Differences include:

Awards. Many business and personal credit cards offer rewards in the form of cash back, points or miles. Depending on the card, you can get a flat rewards rate on all your purchases or an accelerated rate in certain spending categories.

If you get a tiered rewards card, you’ll want the bonus rewards categories to align with your business expenses, and business credit cards tend to do this better with standard business expenses, such as advertising, shipping, office supplies, telecommunications and Internet services. and more.

That said, some companies may have recurring expenses that better fit the rewards structure of a personal credit card. So shop around and compare options based on your company’s spending habits.

“Choosing the right credit card with a rewards system that suits your business needs can really improve your business results,” says Gena Jones, business coach and attorney.

Advantages. Personal credit cards can offer benefits that provide value when you travel or shop, but they don’t offer any business-specific benefits. On the other hand, some business credit cards may offer discounts on certain business products and services, integration with accounting software, free employee cards, and more.

Depending on the type of business you have, some of these perks may be worth having.

For example, personal credit cards typically offer longer 0% APR promotions than business credit cards. “It’s a cash gift,” Jones says. But she notes that you’ll want to do your research to make sure the personal card offer is better and to avoid mixing business and personal expenses on the card.

Protection. One area where personal credit cards have an advantage over business credit cards is in consumer protection. The Credit Cards Act of 2009 created a variety of regulations for credit card issuers, including restrictions on when and how card issuers can raise their interest rates.

Although some business credit card issuers have adjusted their policies to match what credit card law provides for personal credit cards, this is not always the case.

Impact on your credit. Using a personal credit card for business or personal expenses will affect your personal credit score, and you can damage it if you miss a payment or have a consistently high balance. However, it cannot help you establish and grow your business credit history.

On the other hand, most business credit cards require a personal credit check when you apply – you don’t even need a business credit score to be approved – but after that the real account doesn’t. will generally not appear on your personal credit reports. unless you are in arrears.

Capital One and Discover are two exceptions to this rule, with both card issuers reporting some or all of their business credit card account history to commercial and consumer credit bureaus.

But if you want to make sure your business expenses don’t impact your personal credit score or if you want to start building your business credit history, a business credit card with most transmitters will do.

“Like personal credit scores, a higher business credit score indicates better credit, which leads to more favorable financing terms,” ​​says Kate Hao, founder of Happy Mango, a business financial services company. , “like higher credit limits and lower interest rates.” rates.”

What to do if you decide to stick with a personal credit card

Although business credit cards have an advantage over personal credit cards in most areas, you may want to consider sticking with a personal credit card until you feel ready to get a business version.

In the meantime, it’s crucial that you take steps to keep your business and personal finances as separate as possible. This means that if you are going to use a personal card, use that card only for business expenses. Mixing your personal and professional expenses in the same account can have significant negative consequences:

  • Tracking business expenses is more difficult. Accounting is crucial in running a business because it helps you determine how well you are managing the finances of the business and allows you to make more accurate projections and plans. But if you’re mixing business and personal expenses, it can be hard to know which are which, especially if you don’t update your books regularly.
  • Preparing your taxes is more difficult. Business expenses are tax deductible, but if you slip in some personal expenses, you may run into trouble if you are audited by the IRS. Additionally, interest paid on business expenses is also tax deductible, but the same is not true for interest on personal expenses. If you carry a balance from month to month and pay interest, it can be extremely difficult to calculate the amount attributable to your business purchases versus personal expenses.
  • Your legal protections are weaker. If you set up your business as a corporation or limited liability company, you are generally immune from personal liability in the event that the company is sued. However, if you mix business and personal expenses, you could lose this protection. Note, however, that corporate and LLC protections do not apply to your business credit card, as you typically must sign a personal guarantee when you apply, which means you agree to use your personal assets to repay debt if your business can’t.
  • Obtaining financing is more difficult. Applying for a business loan can be a tedious process if you have mixed business and personal expenses, and it could delay your funding. “Lenders don’t want to spend time digging through your personal financial accounts for business-related items or vice versa,” Hao says. “You want lenders to easily understand your business’ financial situation so you can get your loan and get it fast.”

While you’re at it, it’s also a good idea to open a separate business bank account so that you don’t manage your business activities in the checking account you use for day-to-day expenses.

How to apply for a business credit card

As with personal credit cards, there are business credit cards available to business owners across the credit spectrum, although there are fewer options if your personal credit score is considered poor or fair.

To improve your chances of getting a solid business credit card, you’ll want to have good credit or better, which usually means having a FICO score of 670 or higher.

Once you’re ready to apply for a business credit card, the application process is similar to a personal credit card. Since most business card issuers check your personal credit, you will still need to provide your social security number. But if you want to use the card to build your credit history, you’ll also need to get an employer identification number and add it to the application. You can apply for an EIN on the IRS website free.

In addition, you may be asked to provide the following:

  • Company name and address.
  • Your name and address.
  • Business and home phone numbers (these may be the same).
  • Business type (you will be given categories to choose from).
  • Annual business income and monthly expenses.
  • Years of activity.
  • Information about each owner, including the person’s ownership interest in the business.

After you submit the request, the card issuer will usually underwrite it and provide you with a response within seconds. You will then receive the card within a week or two, after which you can start using it as you would a personal card.


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