Developing a brand and juggling apparently infinite chores can be difficult when starting a business. As you start your firm, you may need more funds to get by, and a business credit card can help you bridge that gap. That is why I am here to explain the difference between business and personal cards.
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As a result, it’s understandable if you have concerns. Can you use your personal credit card for business purposes or vice versa? Many of us do. What protection or advantages does a corporate credit card provide? Why don’t you just use one credit card for everything?
Having a business credit card makes the firm — as an organization — accountable for paying back debt, rather than you personally, as long as you’ve established yourself as a corporation or an LLC. There are numerous compelling reasons to sign up for a business credit card, ranging from cashback rewards to travel advantages to a financial cushion in the event of an unexpected business requirement.
Let’s look at the main distinctions between corporate and personal credit cards. We’ll go through the many types of cards, how to use them, and why a business credit card is such an important tool for both new and existing business owners.
- The relationship between business and personal credit
What is the relationship between these two credit types? Is personal credit used to determine business credit? Is personal credit affected by corporate credit? The quick explanation is that these scores are unrelated. Your personal credit score follows you throughout your life, whereas your corporate credit score is unique to your company. However, there are times when personal credit replaces company credit, and this isn’t always to your advantage.
- Benefits of using a personal credit card
Your credit score improves when you use your credit card, pay off loans on time, and pay off your credit card debt on time. Your credit limit will often increase as your credit score increases.
If you use a personal credit card for business purposes, your personal credit history will not appear on your company’s credit report. Because you used your personal credit previously, lenders will not have a complete picture of your creditworthiness when you apply for a bank loan. As a result, lenders may provide less attractive rates for your business loan because you used your personal credit previously. When seeking company finance, however, your personal credit score can affect your application.
You are legally entitled to use a personal credit card for all of your spendings as a solo proprietor or single-member LLC without workers, but it is not recommended. You must segregate your personal credit card spending from your business credit card expenses if your company is registered as another business entity.
- Benefits of using a business credit card
While a sole proprietorship or a single-member LLC with no workers can use a personal credit card, there are still several reasons to use a business credit card rather than a personal credit card.
You may track company costs separately from personal ones with a separate credit card for business, simplifying your financial and tax reporting come tax season.
Many small business owners might benefit from a business credit card. It can help you segregate your personal and business costs, improve your corporate credit score, and provide you with cash when you need it most.
However, there are some situations in which a company loan is the best alternative. When a business loan isn’t an option, a business credit card might serve as a stepping stone to more capital as your company grows.