A Guide To Using Personal Credit Cards For Business Expenses

It may seem most natural to use a business credit card when you’re making purchases on behalf of a business — whether it’s your business or you’re an employee — but there’s a good case to be made for using personal credit cards to cover business expenses instead.

First of all, the CARD Act of 2009 provides a number of legal protections to users of personal credit cards — legal protections that don’t apply to business card users. If you use a personal card, you can’t have your introductory 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 first having 45 days’ notice of the change. While business card issuers often extend these protections to consumers as a courtesy, this isn’t a universal practice.

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. Whatever the reason, using a personal credit card to cover business purchases is a common practice, and there’s nothing inherently wrong with it. However, that’s not to say there aren’t any pitfalls to avoid.

Here are some tips for using personal credit cards to cover business expenses.

Use A Separate Card For Business

One thing you’ll want to avoid is comingling business and personal expenses. A good way to avoid this 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 all your purchases one-by-one on your existing personal card to determine which purchases were business-related and which weren’t.

Keeping your business purchases exclusively confined to one card is helpful in a number of ways. If you’re an employee, you’ll be able to report your business expenditures more easily. And regardless of whether you’re an employee or the owner of a business, confining 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 business charges.

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

Be Wary Of Affecting Your Personal Credit Score

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. If you charge a large business purchase to your card, your credit utilization ratio will be affected until you get reimbursed (your credit utilization ratio is the amount of debt you have vs. the amount of your credit limit).

For this reason, if you’re applying for a loan of some kind, you might want to avoid doing so while you have a large as-yet-unreimbursed business expense on your card. If you don’t, you may well end up paying a higher interest rate on your loan.

Of course, the positive aspect of this is the fact that if you make your payments and use your personal card wisely, you can improve your credit score in a way you can’t with a business credit card. (That’s due to the fact that, when you use a business card, transaction history isn’t typically reported to the consumer credit bureaus).

Pay Off Your Card As Soon As You’re Reimbursed

A recent report from CareerBuilder found that 78% of full-time workers in the US live paycheck-to-paycheck. With this as our grim reality, it’s no wonder that many workers are tempted to use their reimbursement funds to pay other bills. However, you should really avoid doing this if at all possible.

If you don’t pay down your card with your full reimbursement amount, you’ll be paying interest on a purchase that wasn’t even for you. Unless doing so would make you homeless, pay off that card as soon as you get the reimbursement check. Otherwise, you’re just throwing money away in the form of interest payments.

Record Everything

A good way to both streamline the reimbursement process and satisfy the IRS in the event of an audit is to be fastidious about record-keeping. Use a smartphone app to save pictures of receipts from all your business purchases, along with pictures of the reimbursement checks you receive (or screenshots of the direct deposit).

You may even want to jot down additional information on your business receipts before archiving them, such as the people who were with you and the date/time of the transaction. Generally, the more information you can provide about your business purchases, the better — whether it be to the IRS, or if you’re an employee, to your boss.

Pick The Personal Card That Fits Your Business Spending Profile

Naturally, when you’re considering which credit card to use for business expenses, you’ll be comparing interest rates and fees as you seek the best deal. However, don’t forget to compare the rewards programs of the personal cards you’re considering as well.

The nature of your business will determine the sort of items and services you’ll be charging to your new card, so be sure to choose a card with rewards you’ll be in a position to take advantage of. Let’s take a look at a few personal credit cards you can use to cover business expenses.

Chase Freedom Unlimited

Chase Freedom Unlimited can be a good card to use for business spending for three primary reasons. First, the card offers an amazing 3% cash back on all purchases in your first year for the first $20,000 you spend on purchases.

Second, after the first year (or after you spend $20,000 on purchases — whichever comes first), you’ll get unlimited 1.5% cash back on every purchase you make. This means you won’t have to keep track of revolving rewards categories or worry about limits on the cash back you’ll earn.

Third, this card has an introductory 0% APR period that lasts 15 months. That’s a 15-month window in which you can rack up charges and carry a monthly balance without having to worry about interest charges.

US Bank Cash+ Visa Signature

If you’ve got excellent credit, the US Bank Cash+ Visa Signature card might just help you out.

The card’s primary draw is the 5% cash back you’ll earn on the first $2,000 worth of purchases per quarter in two categories of your choosing. These categories are subject to change on a quarterly basis, but if you don’t mind keeping track of the categories and your business spending is varied enough that you can take advantage of the high-earning categories, you stand to make some nice cash back with this card.

Use It Or Lose It

Remember: If you get a personal credit card to use for business expenses, make sure to actually use it. If you go for a long period of time without charging anything to the card, your credit card issuer might shut down your account due to inactivity. This can negatively impact your credit score.

Try To Get Reimbursed As Soon As Possible

If you’ve ever worked at a company where you’re expected to cover business expenses, you know how frustrating it can be when your reimbursement doesn’t come in a timely manner. It obviously impacts the amount of credit you have available, and — as I’ve discussed — can affect your credit utilization ratio as well.

Try to ensure that your company’s reimbursement policies are reasonable before agreeing to make business purchases on behalf of the company. And if your reimbursement is delayed and you have to pay finance charges as a result, insist on being reimbursed for that as well. No employee should be made to suffer negative consequences as a result of a company’s lackadaisical reimbursement practices.

Final Thoughts

For both business owners and employees, it’s perfectly reasonable to use a personal credit card to cover business expenses. By following these rules of thumb, you can avoid taking a personal financial hit when charging business expenses to your personal credit card.