Business vs personal credit cards: Key differences you should know before applying

Making a choice between a business credit card and a personal credit card may indeed be challenging, especially for independent contractors, business owners, or professionals. They both allow people to withdraw and to pay loans on credit, but very different from one another in terms of how they operate, report, and pay.

To help you decide on what credit card is right for you, let us look at the main differences.

What is a business credit card?

A business credit card is used for business whether you are running a start-up, small business, or doing freelance consulting. It is designed to keep the accounting and tax reporting simpler as it allows the separation of your personal expenses from your business expenses.

What is a personal credit card?

A personal credit card, on the other hand, is made for personal use, is related to your personal credit score, and is used for everyday spending such as food, travel, entertainment, and online shopping.

Key differences between personal & business credit card

1. Purpose & usage

• Business cards: It can be utilised for transactions with clients, inventory, marketing, utilities, and so on, for other professional or business purposes.
• Personal card: For personal bills, & personal lifestyle.

2. Eligibility criteria

• Business card: Typically needs GST, registered business, or proof of self-employment or freelance work.
• Personal card: Based on your credit history, employment status, and personal income.

3. Credit limit & expense control

• Business card: It often gives much more credit than a personal card, as a business card is often based on business turnover, and also offers usage restricted add-on cards for employees.
• Personal cards: Credit limits on personal cards are typically based on your monthly income, and ability to pay back.

4. Rewards & benefits

• Business cards: It offers you the perks you want such as vendor discounts, GST billing benefits, travel rewards, and waiving fuel surcharges.
• Personal cards: It may offer more rewards points, air miles, cashback and shopping coupons.

5. Fees & charges

• Business cards: It may have more features providing added value, but they still tend to carry a higher annual fee. Competitive rates can be found, especially for those who are heavy users.
• Personal cards: It offers less avenues for customisation but may carry less or no fees annually across the board.

Impact on your credit score

• Business credit cards until specifically stated, usually only report to business credit agencies such as Experian Commercial.
• Personal credit cards will affect your personal credit score, and may report card activity to credit agencies such as CRIF High Mark or Equifax.

If you're responsible personally for your business card and miss a payment it may still affect your personal credit history.

What should you choose?

1. If you are wanting to control employee spending, establish business credit and separate finances, use a business credit card.
2. If you only earn a salary, or your business doesn't require frequent use of credit to make purchases, a personal credit card is appropriate.

In conclusion, before you submit an application, examine your spending behaviour, your financial goals, and the need for periodic reporting. A business credit card can be a vital financial resource for entrepreneurs and businesses and personal cards remain the preferred option for those aiming for personal financial freedom.

Disclaimer: Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.