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Can I use a personal card for business expenses?

ZDNet logo ZDNet 9/9/2021 Erin Gobler
(Image: Shutterstock) © Shutterstock

(Image: Shutterstock)

Keeping track of expenses can be a burden across multiple accounts and credit cards, so you may find it easier to use a personal card for both personal and business expenses. After all, it's not like either expense type will be declined if you use one for the other. But, is it smart to use a personal card for business expenses?

There are both benefits and drawbacks to using a personal card for business expenses. If you plan to use a personal card, the best way to keep your personal and business finances separate is to dedicate that personal credit card to business transactions only to make tracking easier. Consider the pros and cons of using a personal card for business expenses before your next shopping trip.

Personal cards have better protection

While business credit cards may have more perks geared towards business owners, personal cards usually have better terms. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) protects personal credit card owners by requiring written disclosures and limiting fees and excessive interest rates. 

Business cards are not subject to the Credit CARD Act and usually have higher fees and interest rates, since both are deductible business expenses. If you want the CARD Act protections, you can use a personal card for business expenses, but keep this card for those expenses only.

Using a personal card limits legal protections

If your business is set up as a corporation or LLC, you have certain legal protections granted based on your business structure. However, if you don't keep your business and personal expenses separate, you could reduce or eliminate those legal protections. 

If your business defaults or fails and still has debts, your commingled funds could allow the debtor to go after your personal assets to satisfy the debt. This is what it means to "pierce the corporate veil."

You can't build business credit with a personal card

Building credit responsibly in your personal life allows you to access the best interest rates and terms on loans and credit cards. The same is true for establishing and building business credit. But if you use a personal card for business expenses, you won't be helping your business credit. This can hurt you if you want to get a business loan for equipment, real estate, or other business needs.

Business cards often have better perks

If you enjoy earning rewards on your personal credit cards, you will be happy to know you can do the same with business credit cards. Many credit card issuers offer a personal and business credit card version, with the business card offering perks geared specifically to business owners, like:

Business credit cards also usually offer higher percentage award categories for common business expenses, like utilities, online advertising, and office supply stores. If you meet the minimum spend requirement for the Chase Ink Business Cash Card, you get a $750 cash back bonus. With Chase's personal credit cards, the sign-up bonus is only $200.

Personal cards make it harder to track employee expenses

If your business has employees and you give them spending privileges, most business credit cards offer free employee cards. The issuers make it easy to track spending per employee by assigning a different card number to each employee. You can also set spending limits and alerts if needed.

If you use a personal card for business expenses, you won't be able to get employee cards. You can add them as an authorized user, but you can't separate the transactions and you are personally responsible for all purchases, whether or not you authorized them.

Most business cards don't report to the credit bureaus

Unlike personal credit cards, most business credit cards don't report to the credit bureaus. This can be a benefit because your business transactions won't affect your personal credit. This is beneficial because:

  • A late payment won't affect your personal credit.
  • If you have a high balance on a business credit card, your credit utilization ratio won't be affected.
  • Your business credit cards won't factor into approval for personal credit cards and loans.
  • If you are applying for a personal loan, your business card balance won't affect your debt-to-income ratio.

If you personally guarantee the business credit card using your social security number, the bank may report late payments or charge-offs. And while many business credit cards don't report to the credit bureaus, some do, so it may be worth it to find out before applying.

Personal cards may not have a high credit limit

Depending on your credit score, you may not qualify for a high enough credit limit to meet your business expense needs. Credit cards made for business usually come with higher credit limits because the bank understands that businesses generally have larger transactions and more volume.

By keeping your personal and business expenses separate, you can control spending limits easier on both accounts. Plus, if you need to make a large business purchase, you don't have to worry that you won't have enough credit to pay for a smaller personal expense. Being responsible with your business credit card can help you build business credit, which can boost your spending power down the road.

The Bottom Line

While you can use a personal card for business expenses, it's not advisable unless you are keeping your personal transactions separate. If you prefer the benefits of a personal card, only use that card for business expenses and use your business account to pay the bill. Separating your business and personal finances protects your personal assets and credit score, while also helping you build business credit.

Is it illegal to use a personal credit card for business?

No, it is not illegal to use a personal credit card for business. However, business credit cards offer specific perks and benefits to business owners that personal credit cards do not. And if you use the same card for personal and business expenses, you could open yourself up personally to an audit or be held personally liable for any default, which could negatively affect your credit score.

Can I pay business expenses from my personal account?

You can pay business expenses from your personal account, but it's best to keep your personal accounts separate from your business. Commingling personal and business expenses is never recommended, especially if you get audited by the IRS or default on the card terms. If you do, then both your business and personal finances are open to review. Plus, if you deduct business expenses on your taxes, it may not qualify if paid from a personal account.

Can you switch a personal credit card to a business credit card?

Yes, depending on the card issuer, you can switch a personal credit card to a business credit card. Closing out a personal credit card could affect your credit score, so weigh your options if you want to close the account after switching to a business credit card. If you plan to transfer a balance, you may be limited because not all business credit cards offer balance transfers.

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