It is not unusual to see a credit card offered in versions for both consumers and business users. In addition, many business credit cards offer competitive rewards and benefits. Therefore, some people will carry both business and personal credit cards for everyday use. However, business credit cards carry some catches. Let's look at five.
1. They're Exempt From Many CARD Act Protections
The CARD Act was one of the most far-reaching pieces of consumer protection legislation to affect the credit card industry. Yet because those protections were meant to help consumers, lawmakers exempted credit cards used by businesses.
For example, the CARD Act prohibits double-cycle billing, which is when card issuers calculate interest based on the previous two billing cycles, often including transactions that were already paid. Other CARD Act provisions include banning interest rate increases based on information from other lines of credit and unfair payment allocation that credited payments to the balance with the lowest interest rate first. Thankfully, many business credit cards voluntarily comply with some of the CARD Act provisions enforced on consumer cards, but business card users need to closely examine their card's terms and conditions.
2. Business Debt Appears on Your Personal Credit History
Even though you applied for a credit card in your business's name and used its employer ID number, any debt incurred will still appear on your personal credit report. If the debt is substantial, it could increase your debt utilization ratio and hurt your credit score. This is why it's important to regularly check your credit reports for accuracy and monitor your credit scores to see how your habits are affecting your credit. You can check your credit reports for free every year from each of the three major credit reporting agencies, and Credit.com gives you two free credit scores, updated monthly, with an explanation of what factors are influencing them and a plan to help you build credit.
3. The Primary Account Holder Is Always Responsible for Paying
If you use a business card to charge expenses that are to be reimbursed by an employer or a client, the debt is still yours. If your client fails to reimburse you, or your employer goes out of business, you will be stuck with the debt, and any default will severely damage your credit.
Likewise, if you own a small business, and you make an employee an authorized cardholder, you will be personally responsible for paying all of his or her charges. Should a disgruntled employee use his or her card to make personal charges, you must first pay the bank and then pursue the employee to recover any money that you feel you are owed.
4. They Can Be Expensive
Most business credit cards are rewards cards that offer valuable features and benefits, but they also have substantial annual fees. These products can make sense for frequent business travelers, but owners of some small businesses may be incurring unnecessary expenses.
5. The Primary Account Holder Earns the Rewards
Perhaps you have been made an authorized cardholder of a business credit card account. Any points, miles or cash back rewards that are earned will be credited to the primary account holder, not the authorized cardholder. Some employees who are required to use their boss's business card feel that they are being deprived of the rewards that they could have earned had they used their own personal credit card.