Business credit cards

Can I get a business credit card if I am self-employed?

Yes, with the current shift in the labor markets towards a gig economy, credit card companies including Chase, Capital One, American Express, and many others issue business credit cards to the self-employed. I would like to caution that one should keep in mind that different credit card companies have different policies with regard to issuing business credit cards for the self-employed. Depending upon individual needs, one can find the best fit for his/her business and establish in-depth understanding of what she/he is signing up for.

Can anyone get a business credit card?

My bank required that I submit a business tax ID number in order to get a business credit card. I believe this is typical and helps to validate that the business is legit. Even single-person businesses get tax ID numbers as they create a registration for the business and can help with sales tax exemptions and business income tax deductions. Because my consulting business is an LLC that is treated as a sole proprietorship, the creditworthiness of my business is based on my personal credit score.

Businesses of all sizes can get business credit cards. It’s pretty typical for employees of any size firms to have a business credit card to use for travel and what would otherwise be classified as reimbursable expenses.

What are the benefits of having a business credit card?
The biggest benefit that a business credit card has versus a personal one has to do with the amount of credit offered. As you can imagine, one of the biggest and most-frequent business issues, especially in small to mid-size businesses, is cash flow. Some business credit cards offer credit up to $50,000 which allows for a great deal of flexibility for the business owner. Furthermore, if the business pays its credit card debt in a timely manner it boosts its credit rating which may result in them getting better terms (for example dating) from their suppliers.

How do you determine if an annual fee is worth paying?
People hate annual fees. Since consumers have a huge choice of no-annual-fee cards, why would anyone pay for something that they can get for free? The answer is, it depends.

Premium business credit cards often have perks and benefits that regular cards don’t. You can get higher rewards (cashback) earning rate, sign-up or annual bonuses, travel, dining or entertaining perks, concierge services, additional insurance coverage, or discounts on various shopping categories.

Depending on your lifestyle and spending patterns, it might make perfect sense to pay for a credit card, if you can get more in perks and benefits from it than from a no-annual-fee card. As a business owner, you are more likely to charge higher expenses on your credit card, so, even with an annual fee, the rewards or cashback you reap can be significantly higher.

Why would someone choose a business credit card over a personal credit card?

A business card may come with perks that you can’t find on a personal card (e.g. 5% back at office supply stores).

Also, some business credit card issuers only report to commercial credit bureaus. This means a business credit card application might not affect your personal credit score.

New credit inquires have the potential to impact up to 10% of your score. Avoiding a personal credit inquiry may help when applying for additional loans or personal credit cards.

Why do I need a business credit score, and how is it different from a personal score?
Just like loans to individuals, lenders want to know as much as possible about a borrower before approving a credit card application.

Business credit scores work similarly to personal scores in many ways but are monitored by some different companies. On-time payments and keeping revolving balances (credit cards, lines of credit) low is key.

However, when you are looking for a credit card for a small business, your personal credit score is likely a factor as well.

When is a business card a good idea?
Business credit cards can help particularly small businesses keep track of how much they spend, on what, and when. They can also serve as a `cash flow buffer` for most firms that often have to spend now and collect from their customers later. This seemingly free additional spending power and flexibility comes at a high price, though: interest and the risk of unnecessary spending. When businesses cannot pay off their credit card balances in full every period, mounting credit card debt can become a problem itself, much like what consumers face.

Can small business owners use a regular credit card for their business?
One needs to keep business and personal accounts separate. A small business owner can use a personal credit card for business purposes, but after evaluating the factors listed below:

• Business credit cards may have a higher credit limit and more flexible payment options.
• Having a business credit card would help build credit history for your business, which may be used for future financing as the business grows.
• Having a separate card for business may allow you to claim costs such as missed payments and interests for your business
• Personal credit cards have certain legal protections, such as from future increases in fees and costs.
• Personal credit cards usually have more rewards and cashback options, but some business credit cards offer high perks.

Can you get business credit with bad personal credit?
The short answer is YES. It is more difficult and you will have fewer options. You will likely have a higher interest rate than someone with better personal credit. The amount/credit limit on some of the business cards you can get may be low. In the end, business cards are personally guaranteed so if there is default on a business card, you are liable for it.

What is the difference between a business and personal credit card?
Business cards may have larger credit lines, better perks for travel and points, and are a good way to establish business credit. However, they may require an annual fee, have higher interest rates, and may require a personal guarantee of repayment. This means that your use of credit for your business could effect your personal credit score.
Personal credit cards don’t usually have annual fees, have a smaller annual percentage rate, and may have a smaller initial credit line.
Probably the most important thing to remember about the difference is that business cards can hurt your personal credit, but probably not improve it. Where personal credit cards and personal credit can help you establish business credit.

Does a consumer need a business to open a business credit card?
No, a consumer doesn’t need to start or own a business of any size (large or small) to apply for and open a business credit card. Business credit card providers, while geared for small business owners, are typically open to providing access to business credit cards to small businesses and individuals. With a good credit score, an individual can be the proud owner of a business credit card.