Personal or Business? Parameters for Choosing a Credit Card

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Wise Bread Picks

• Travel Rewards Credit Cards
• Cash Back Credit Cards
• 0% Balance Transfer Credit Cards

We've all got our different reasons for making a particular product choice, and it's no different when it comes to shopping for a credit card.  So what is it that draws you to any one card?  Some people are attracted to certain credit cards because of their design and appearance. But some are very practical and look at the bottom line: they check the interest rates, APR, card fees and other terms that come with the card.  And in my particular case, I look at a couple of things: the rewards and the annual fees.  Since I pay my credit card in full each month and don't carry a balance, I'm after maximizing cash back rewards and minimizing those annual fees and grace periods.  The best cards for me are those with $0 annual fees with decent terms and sign up bonuses (free money, why not!).

Personal vs Business Credit Card

Now the aforementioned parameters are some of the more obvious reasons for picking a card. But there's something else you may want to consider before you fill up that credit card application.  If you own a business, and would like to enjoy the benefits of a business card, there are a few considerations you may want to be aware of.  Some people may not be aware of the differences between business and personal credit cards, which I'd like to clear up. Here are a few tips to consider when making a decision between these different cards.

1. Your personal credit standing is still on the line with a business credit card.

What a lot of people don't realize is that if you're a small business owner, you can still be personally held liable for how you handle your business card.  If the card company asks for your social security number to open a card account, then you know you're on the line for it, and you'll remain liable for how you manage this credit line. Thus, any late payments on a business card will affect your personal credit score.  In fact, many people confuse a "small business credit card" with a "corporate credit card."  With a corporate card, the main cardholder's personal credit won't be affected with its use; any defaults on such a card won't affect the business owner's personal credit.  But note that corporate cards are only available to big business entities and that the criteria that defines such businesses varies by card company (e.g. A card company might declare that a big business enterprise must have at least 20 million in sales and at least 200 employees, for instance).

2. Compare the rewards with those from consumer cards. 

There are certainly benefits to getting a business card; just not what you may automatically assume. As a small business owner you may want to have a separate card for your venture to make financial planning easier.  Also, some vendors only take business cards exclusively.  And finally, there may be much better rewards available to you that are pertinent to your business if you use such cards.

Here's a case in point: many rewards business cards pay you extra points or cash rebates for so-called "business related items" (like buying your stationery at Staples). If these are huge expenses for you, this is something to think about.

3. Your card statements may be presented differently.

Unlike consumer credit cards, business credit cards tend to give cardholders a monthly breakdown of expenses in categories. For those who like this feature, this might be a reason to lean towards a "small business credit card." While many consumer card statements have this feature as well, they tend to give you an annual statement summary rather than a monthly one.

4. Watch out for additional fees for employees.

Beware of any extra fees that a card company charges for additional cards. Some cards won't charge you any fees. Some have no fee for the first few additional business cards. But certainly, do some proper research on this point. If you have just a couple of employees whom you want to give cards to, perhaps even a personal card will do.

5. Most travel rewards are the same.

By this, I mean that there's really no difference between the frequent flier miles perks for personal vs business cards. You'll be earning the same type of miles for a carrier no matter if you have that carrier's business or consumer credit card.

6. Some business cards report to Business Credit Bureaus.

If building a business credit score is important for you, ask if a credit card issuer reports to bureaus like Dun and Bradstreet. But bear in mind that whether or not they report to D & B, any default (or other problems) will also show up on your personal credit score and report.

7. Leverage 0% offers when it makes sense.

Many personal and business credit cards offer teaser 0% APR for purchases for some extended time (the introductory period). I wouldn't recommend that consumers go on a 0% financing spree on a plasma TV, but for a business, 0% financing for some start up costs may make sense and may provide some breathing room.

9. Ask the right questions before applying for a card.

Here are a few questions to ask in order to find out whether a business card is something you should get:

• What kind of expenses do you plan to put on your card?
• Does your business require travel?
• Will your business carry a balance on the card (do you need lines of credit)?
• How many employees should your card be distributed to?
• What kind of cards will your vendors accept?
   
• Can you get better trade terms from a vendor?

You should take into account these concerns even as you look at each card's general terms, such as interest rate, fees, grace period and rewards program. For those interested, here's a sampling of some of the best business credit cards out there today.