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Mike Dolen is the President of Credit Card Forum, which is a resource for both consumers and businesses. He has extensive experience in helping people with their credit-related decisions.

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When Business Credit Cards Make Sense

Guest article by written by on Mar 14

If you’re self-employed or run a small business on the side, one of the most dreadful tasks at tax time can be sorting through your personal and professional expenses. Should you be using the same credit card for both? Or is it time to get a card which will be used exclusively for your business?

Four circumstances when it DOES make sense

If you find yourself in one or more of these four predicaments, it’s probably time to get a business card.

1. You regularly make business purchases

In any given year, there’s a good chance you may have hundreds of credit card transactions from your personal purchases. If you also have business purchases mixed in among them, sorting them out can be a real nightmare.

It may not be that much of a hassle if there are only a few, but if you are regularly buying things for your business, getting a separate card will definitely save you a headache at tax time. Plus, you will be able to link the biz card to your LessAccounting account, so all those transactions will be downloaded automatically!

2. You carry a balance on your credit card

Any interest you were charged for business purchases might be tax deductible (consult your tax professional, as I am not one). But if you have those mixed in with your personal spending, how will you know the amount of interest you’ve paid on just your business purchases only? Because obviously, you cannot deduct the interest from your personal expenses.

Calculating out the allocation would be nearly impossible. Keep in mind that when you carry a balance beyond the grace period, you are retroactively charged interest going back to the purchase date for each transaction. For that reason, you would have to individually calculate out the daily interest for each business purchase. My guess is you don’t want to do that!

3. You want to earn better rewards

Did you know that merchants have to pay a higher fee to process business credit cards? For that reason, these types of cards are more profitable for the banks. Fortunately, most banks will kick back some of that extra money to the customer, in the form of a better rewards program.

In fact, some of the best reward cards on the market are for businesses. Take the Chase Ink Cash as an example. It is a no annual fee business card for cash back. It gives 5% on the first $25k spent annually at office supply stores/cell phone/ landline/internet/cable TV services, plus 2% on the first $25k spent annually at gas stations and restaurants. That program is substantially better than the Chase Freedom, which is for personal use. With that card, you only get 5% on up to $6k spent annually on very specific categories, some of which are not very popular.

If you’re spending a lot on your business, chances are you can probably earn higher rewards by getting a different credit card.

4. You want to build credit for your LLC or corporation

Obviously, your personal card is going to do diddly-squat to build credit for your LLC or corporation. But if you get the right credit card, it might be able to help you.

Unfortunately, not all biz cards will report your account to the business credit bureaus like Dunn & Bradstreet and Experian Business. For example, most of the ones from American Express will not. On the other hand, those from Capital One and Chase usually will.

So if building corporate credit is a priority, getting a biz card is probably a good idea. But before you apply, just make sure the issuer will be reporting your account to the appropriate credit bureaus.

Three circumstances when it DOES NOT make sense

Despite the advantages, not everyone needs to get a separate credit card.

1. You never (or very rarely) make business purchases on credit

Depending on your line of work, the transactions you do might be with checks or good ol’ cash. If that’s the case and you’re rarely using a credit card, then there will be little need to get one.

2. You plan to get a mortgage within the next 6-12 months

Did you know that applying for credit (cards or any other form) can actually have a negative impact on your credit score? The reason for this is because each time you apply, a so-called “hard” credit inquiry is performed. These are saved on your credit report for 24 months and for the first 12 months of that, they can adversely affect your score.

For this reason, if you’re planning on buying a new house in the near future, it might be best to hold off on the biz card until afterward. Even though these inquiries can affect your score for 12 months, their greatest impact is during the first 6 months. Plan accordingly as everyone’s circumstances will be different. Some people have such a high score that having one inquiry won’t change their chances for getting the lowest mortgage rates.

3. You have a tendency to overspend when using plastic

Even though I run a website about credit cards, I know they’re not for everyone. Some people have a tendency to overspend when they’re using plastic. If that’s you, it might be best to avoid getting another card.

It’s true that the business purchases you make are probably less frivolous than say, another pair of shoes, but regardless, you will still be responsible for the debt. This is because all small biz cards require a personal guarantee (unless your company has revenue in excess of $5 million annually). So overspending on business purchases can be just as dangerous as doing it with personal expenditures.

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