A Guide To Using Personal Credit Cards For Business Expenses

Using a personal credit card to cover business expenses is a common and acceptable practice. While using a business credit card to fund business-related purchases may seem like the obvious way to go, an SBA study on business financing found that, in fact, a higher percentage of startups use personal credit cards to fund their operations (13%) than business credit cards (7%).

In this article, we’ll discuss some advantages and disadvantages of using personal credit cards for business expenses. We’ll then discuss best practices to keep in mind when using personal credit cards for business — things you should remember to do, along with some pitfalls to avoid.

Can I Use A Personal Credit Card For Business Expenses?

The answer to this question: Yes!

Using a personal credit card is completely fine for business expenses. At the end of the day, personal and business credit cards perform the same function by making purchases on credit, so as long as you properly track your business expenses, using either a personal or business credit card to fund a business purchase is completely acceptable. The next question you should ask: Which kind of credit card should I use to cover business expenses?

As it happens, using personal credit cards for business can be actively beneficial. Firstly, the CARD Act of 2009 provides legal protections to users of personal credit cards that don’t apply to business credit card users. When using a personal card, you can’t have your intro APR revoked before six months have passed, nor can you be charged excessive fees for minor infractions.

You also can’t have your APR raised without 45 days prior notice. While business card issuers often extend these protections to consumers as a courtesy, this isn’t a universal practice.

Secondly, you might also find that the rewards programs associated with personal credit cards fit your spending patterns more closely than the incentive programs of business card issuers. Of course, this can cut the other way too — business credit cards often come with rewards, welcome offers, benefits, and other perks targeted directly at small businesses, so you may well find business credit cards to be a better fit for rewards.

One consideration that cuts in favor of business credit cards: If you intend to give employees their own credit cards, applying for a business credit card with free employee cards could be an excellent option — personal credit cards aren’t as good when it comes to requesting and tracking additional cards.

All things considered, it usually makes sense to check out both personal and business credit cards before making a final decision.

Using Personal Credit Card For Business: Best Practices

If you’ve decided a personal credit card is right for your business, here are five of our favorite pieces of advice:

Use A Separate Card For Business

No matter how you fund your business, it’s important to avoid commingling business and personal expenses. A good way to keep things separate is to use a separate credit card for your business purchases, even if that card is a personal card. This way, you won’t have to go through your existing personal card’s purchase history line-by-line to determine which purchases were business-related and which weren’t.

Keeping your business purchases confined exclusively to one card is especially helpful at tax time. Limiting your business purchases to one separate card will make dealing with the IRS less painful in the event of an audit. If you charge business and personal expenses on the same card, you may have a harder time proving to the IRS that your business charges really were for business purposes.

Keep Your Credit Utilization Low

If you use a separate personal credit card for all your business-related expenses, know that you can negatively impact your personal credit score with your business purchases. To help alleviate the hit to your score, keep your credit utilization ratio — the amount of debt you have versus the amount of your credit limit — low. As we explain in our guide to improving your personal credit score, it is generally recommended that the amount of available credit you utilize is kept below 30%.

Note that regardless of whether you make personal or business purchases on your credit card, all debt owed on your credit card is treated the same when calculating the credit utilization ratio. As such, all purchases (business or personal) made on a personal credit card will affect your personal credit history’s credit utilization ratio.

Make Your Payments In A Timely Fashion

Of course, while you can hurt your personal credit score with a credit card, you can also boost your credit score by using your card wisely. The easiest way to help your score is by making payments on time. By consistently paying off your bill on time, you’ll be able to improve your credit by showing that you are a trustworthy credit borrower.

The fact that you can improve your personal credit score is actually another big plus to using a personal credit card for business purchases — creditors don’t typically report business credit card activity to consumer credit bureaus (read our guide on Equifax vs Experian vs Transunion). This also means that you should only place purchases on your credit card that you know you can pay off. It’s not worth being saddled with extra debt that can be subject to interest rates and could negatively impact your credit score.

Don’t Use Your Debit Card

Even if you don’t get a separate card for business use, whatever you do, don’t make business purchases on your debit card. Doing so is a good way to get a hold placed on your own money.

Entities such as hotels and rental car agencies will typically place a hold on your card — often for hundreds of dollars. In this way, business-related purchases can end up sapping your personal funds. Don’t do it!

Know When To Graduate To A Business Credit Card

As your business grows, you may find that a personal credit card won’t cut it. This is especially true if you eventually want to get employees their own credit cards. In this case, finding a business credit card could become the right option — many offer free employee cards that are easy to request and hand out.

Your business’s spending habits may change over time as well. If this happens, you might find that there is no personal credit card that offers the best rewards for your business. Instead, a business credit card with business-focused rewards may become a great choice.

Find The Right Credit Card For Your Business

Hopefully, we’ve put your mind at ease by establishing that it’s not illegal to use a personal credit card for business purposes.

Ultimately, the decision to use a personal or business credit card will depend on what your business needs a credit card for. Both business and personal credit cards can be great options for many different kinds of businesses. To help your search, we recommend taking a look at some of the best business credit cards on the market today. If those cards don’t suit your needs, spend a little time reading our personal credit card reviews.