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What is the difference between business and personal credit cards?
If you're a freelancer or a business owner, deciding between a personal and a business credit card could be puzzling. While there's no one-size-fits-all answer, understanding the differences between the two types of credit cards could help you make the right choice.
It's possible to continue using your personal credit card for business transactions. But as your business grows, separating personal and business expenses becomes more important. That's where a business credit card could come in handy, providing a convenient tool to organise and separate your finances. Additionally, as business credit cards are tailored for business spending, they may offer better expense tracking and spending controls, making it easier to manage your business expenses.
Business credit cards vs personal credit cards
When it comes to credit cards, there are distinct differences between personal and business cards. Personal credit cards are intended for individual use and tied to the cardholder's credit history. In contrast, business credit cards are specifically designed to cater to business expenses and come with unique features like expense tracking and the ability to issue multiple cards to employees.
While both types of cards function similarly in terms of usage and interest charges, it's essential to understand the differences before deciding which option best suits your needs.
Business credit card | Personal credit card | |
Credit limit | Business credit cards generally have higher credit limits to account for the higher spending associated with running a business. However, to get a high credit limit, you’ll need to prove that you have a big enough business with substantial revenue that can pay the credit card bill. | The credit limit on personal credit cards is typically lower than business credit cards. It’s also based on individual creditworthiness and credit score. |
Eligibility | A business typically needs to have an active Australian Business Number (ABN) to apply for a business credit card. | Individuals above 18 years of age may apply for a credit card. Eligibility may differ between card issuers and depends on personal financial history and creditworthiness. |
Liability | Liability for a business credit card debt will depend on the business structure. For sole traders or individual business owners, the liability will fall on them. If the card is used for a business structure other than an individual or sole trader, the debts incurred remain the company's liability and not the individual's. | Personal credit cards hold the individual cardholder personally liable for any debts incurred. |
Additional features | These cards offer business-focused features such as expense tracking and reporting tools. Some card issuers may also provide additional account services to support your business needs. | Some personal credit card providers may offer budgeting tools and expense trackers to help individuals manage their finances better. |
Number of users | It’s possible to issue cards to multiple employees with individual spending limits. | Generally limited to the primary cardholder, but some card providers may allow for one or two secondary cardholders. |
Insurance and fraud protection | Utilising a business credit card could reduce the risk of losses arising from fraudulent activities because these losses are typically protected under company liability insurance. Furthermore, certain cards offer cardholder transit accident insurance, providing coverage for the cardholder, their spouse, and dependent children in the event of an accident during business-related travel. | While personal credit cards may not offer the same level of protection as business credit cards, some credit cards do provide complimentary travel insurance, purchase protection insurance and rental car insurance. |
What are the benefits of getting a business credit card?
When it comes to managing finances, business owners may find a business credit card helpful in establishing a clear separation between personal and business expenses. Separating personal and business expenses reduces the risk of commingling funds, which could help simplify tax preparation and reporting by ensuring accurate financial records. However, remember that you're not allowed to use a business credit card for making personal purchases. While you may be able to pay for an occasional personal purchase with a business credit card, there could be consequences, such as having your card cancelled by the issuer.
In addition to maintaining financial separation, many business credit cards provide detailed expense statements and integrate with accounting software to streamline the record-keeping process. Some business credit card issuers even provide real-time spending reports and analytics that could offer valuable insights into your company's financial health.
Moreover, a business credit card allows a business to build a separate credit profile. Responsible credit usage and timely repayments help establish a positive credit history for the business, making it easier to raise funds in future, especially through borrowing.
Similar to personal credit cards, some business credit cards also come with rewards programs and other incentives. With these credit cards, you could earn cashback, rewards points or airline miles on your business-related expenses. However, remember to compare the fees and interest you'll pay on different business credit cards to ensure you get the best value for your money.
Who can get a business credit card?
Eligibility is an important factor when it comes to getting a business credit card. Most banks and financial institutions offer business credit cards for small to large companies, but certain requirements must be met to qualify. For instance, many credit card companies require the business to have been operational for at least 12 months and possess an active ABN. This helps the card issuer determine the business's stability and legitimacy.
Some credit card providers may also have minimum income requirements in place. This means that to be eligible for the credit card, your business will need to meet a minimum turnover. It’s important to note that these requirements may vary between providers, and it could help to research and compare options.
When exploring different options, take the time to find a card that best suits your business needs. Ensure you look beyond the interest rate when comparing business credit cards. Compare the fees and other features associated with the card to find the best deal that has the features you need for your business.
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Product database updated 19 Apr, 2024
