Many first-time business owners obtain a business credit card for their business expenses, and for good reason. Business credit cards make it easier to track your business expenditures, keep business and personal spending separate, and help give new businesses needed capital.
But before you start charging up your new business credit card, it's important to know some of the key differences between personal credit cards and business credit cards. Thanks to the Credit CARD Act of 2009, personal credit cards offer a number of protections to consumers. However, the majority of these rules don't apply to business credit cards.
No limit on fees
One of the main ways credit card companies make money is through fees, including late fees, over-limit fees, and more. Personal credit card late fees are capped at $25, and over-limit fees can't be more than the amount overcharged.
Business credit cards, on the other hand, have no limit set on late fees or over-limit fees. Additionally, business credit card holders do not have the option of opting-in and giving permission for a card to go over the limit, as personal credit card holders do. Just one late payment or just a few dollars charged over the card limit can result in hefty fines.
No warning for interest increases
Credit card companies must give 45 days' written notice to consumer credit card holders before raising interest rates, and the new interest rate applies to charges made after the 45 day period only.
Unfortunately for business credit card holders, this rule does not apply. The interest rates on business cards can legally change overnight and apply to the previous balance as well as new charges. This can make carrying a balance on your business credit card a very expensive habit.
Shorter promotional periods
Most credit cards offer consumers promotional periods of zero or low interest rates. According to the CARD act, these rates must apply for at least six months. For business credit cards, however, there are no laws stating a minimum length of time for promotional or introductory rates. They could last anywhere between a day and a month.
Billing cycles are different
Personal credit card bills must be mailed out at least 21 days in advance, and the bill must be due on the same date every month. Business credit cards are not subject to this, so the bill may arrive at any time and can be due on a different date every month.
If you have--or are considering getting a business credit card, don't be discouraged by these terms. The good news is that many business credit cards, including Bank of America and American Express, seek to attract business card customers by matching some of the CARD act's terms in regards to interest rates, billing cycles, and promotional periods.
Knowing this information will make it helpful to find a business credit card that offers the best terms, lowest interest rates, and minimal fees. While shopping around for a business credit card, make sure you understand all the terms stated in the fine print. Ask questions if you don't understand. If you do carry a balance on your card, make sure you take care to never go over the limit and know when payments are due each month.
Personal and business credit cards differ in a number of ways. Knowing these differences can save a great deal of time, money, and headache when handling your business expenses.