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30 Dec, 2016
Savvy Tips

Business credit cards versus personal credit cards

One of the biggest decisions that consumers will need to make is the choice between a business credit card and a personal credit card. Each of which has its own set of pros and cons which is why they each appeal to different needs. Thorough research and a proper understanding of the differences between these cards will help you make the right decision. Here are some of the top differences: 

Consumer protections may not apply to small businesses
Small business owners often see themselves also as consumers and, as such, they usually assume that they are covered by various consumer protection laws. These laws do not, however, apply to your business. This means that you could be charged huge late fees or your APR could change in an instant. If this is something that particularly concerns you, it's important to discuss it with your credit card provider. Make sure that if any such protection that applies to your credit card, it is detailed in writing. Not all credit card issuers offer these protections for business cardholders which is why it's so important to enquire before you sign.

The impact on business and personal credit

When you own a small business, it can be tricky to draw the line between personal and business credit. Many small business owners are required to sign a personal guarantee when applying for a business credit card which makes the cardholder personally liable for any debt accumulated on that card. It's also important to understand that many credit card issuers report card and payment activity on business cards to commercial and consumer credit bureaus. This means that your personal credit score can be affected by the financial activities of your business. That said, there are still a number of credit cards that only report to the commercial credit bureau which means that your personal credit score will not be directly affected as long as you don't fall behind on your payments. If you fail to pay, these card providers may report poor payment habits to the consumer credit bureau. It's an added incentive to make those payments on time! 

More credit with business cards
Given the nature of business activities and the financial demands, business cards often offer higher amounts of credit. For this reason, many people choose these cards in order to cover all of their expenses without struggling to scrounge up every last penny. Like personal credit cards, you will need to submit the relevant documentation, and the issuer will calculate and determine the amount of credit for which you are eligible.

Different awards available
Personal and business cards offer different kinds of benefits. For example, your personal card might offer cash back, or you can earn travel points, whereas a business card offers benefits to help lower expenses such as Wi-Fi, phone bills, or various office supplies. If, for whatever reason, these benefits don't quite suit your professional needs, then a personal credit card might be the better option. Cash back cards, for example, help you earn cash back on various (or sometimes all) purchases. There are a number of different cash back cards to choose from, so it's important to understand how you plan on using your card before making that choice.

For example, if a certain card offers great cash back on gas and groceries but little to no cash back on other purchases, it might not be beneficial for businesses. Look for one that will offer cash back on all those recurring bills and expenses instead. You might not earn a high percentage on one particular type of purchase, but you will earn regularly which is often much better. 

If you choose to use a personal card for your business, you will need to use it strictly for company purchases, and you must only use company funds to pay your monthly bill. If you mix your personal and business purchases, it could void your personal liability protection. Plus, it makes tax season that much easier! According to experts, business credit cards are great for entrepreneurs who want to build strong business credit, companies with substantial business expenses, and anyone looking for a higher credit limit. Personal credit cards are best for sole proprietors with low overheads, those who are not inclined to spend according to business credit card spending categories, and those who are not interested in applying for a business loan or does not feel the need to build business credit.

Don't forget, some cards offer introductory bonuses which means that you have to spend a certain amount on the card within a set period of time in order to qualify. Make sure that you can reach this goal or you will not enjoy the introductory benefits! When shopping around for the best Canadian credit card to suit your needs, take a look at Wallet Savvy for details and benefits for each option.

 

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