Strictly from a naming perspective, you most likely think it’s obvious that a business credit card is the right credit card to build your small business.

However, changes brought about by the CARD Act actually promote the opposite. Depending on your specific purposes in using your credit card, and the flexibility you have in paying your balance, a personal credit card may actually be more fitting for the stewardship of your small business.

This seeming incongruity rests on the fact that you are personally liable with both business and personal credit cards. Many people assume they are somewhat personally protected when using a business credit card because they believe any debts incurred lie ultimately with the amorphous entity that is their company, rather than with them as individuals.

This might be true with medium and large businesses, but with small businesses, you are your company--meaning this believed liability advantage for business credit cards is nonexistent.

Additionally, the CARD Act has instituted numerous changes that protect personal credit cards from predatory practices. For instance, credit card companies are no longer allowed to increase interest rates on existing balances and cannot apply penalty APRs until you are a full 60 days delinquent. 

The legislation also stipulates a payment allocation structure that is more consumer friendly.  The kicker in all of these advantageous changes, however, is that business credit cards are not covered by the law.

Thus, personal credit cards provide far more stability and protection than business credit cards, for which interest rates can be raised at the credit card company’s discretion. So, if there is even a chance you will be carrying a balance on the card you use for your business, opt for a personal credit card. 

However, small business credit cards still have significant purpose and utility. For purchases that you will be able to pay off in full at the end of each month (i.e. you are not running the risk of being swamped by fluctuating interest rates) a business credit card is the smart choice for numerous reasons. 

Business credit cards make it far easier to track business purchasing and allow you to provide individual credit cards with varying limits to employees--whose purchases you will then earn rewards on. Similarly, business credit cards generally have higher credit lines, allowing for greater purchasing power.

Regardless of your industry, it is important to be in control of your debt payment plan and monthly cash flow. Using a business credit card could prevent these things because you could find yourself suddenly and at no fault of your own facing increased monthly credit card payments simply because a credit card company executive woke up one morning and decided to increase profitability by raising interest rates.

It is important to remain mindful of the advantages that both cards; for purchases that you make and will pay off in full each month use a business credit card because of its numerous inherent advantages. 

But when making purchases that won't be paid off at the end of the month, use a personal credit card because its interest rates for existing balances will not change. Ultimately, knowing your payment capabilities and applying payments to the correct type of card accordingly will prove very beneficial to you and your business.

 

Odysseas Papadimitriou, CEO and Founder of CardHub.com, an online marketplace for credit card offers.