4 Ways Business Credit Cards Are Different From Personal Ones

If you're considering getting a business credit card, understand these key differences.

Many small business owners might benefit from opening a small business credit card. Some cards pay bonus rewards on business spending, offer business-related perks, and may give higher credit limits. Business cards work in a similar way to personal ones in the way you might open them, spend money, and pay down your balance. But there are some key differences as well. Here are four of them.

1. Consumer protection laws don't always apply

Regular credit card customers may not know it, but there are several pieces of legislation in place to protect their rights. These protections don't automatically apply to business cards, which means some cardholders may be at risk.

Fair Credit Billing Act (FCBA)

The Fair Credit Billing Act gives non-business credit card customers protection in the event their card is lost, stolen, or used fraudulently. As long as you report the loss, there's a limit on how much you'll have to pay. Business credit cards don't automatically carry fraud protection, though several card issuers incorporate these safeguards.

Credit Card Accountability, Responsibility, and Disclosure Act (Credit CARD Act)

The 2009 Credit CARD Act was a powerful piece of legislation designed to protect consumers from potentially unfair practices on the part of card issuers. For example, card companies have to give 45 days notice before increasing the APR on your account and only new purchases will be impacted by any rate hikes. It also limits the amount of late fees you might be charged.

Many of the best business credit cards do offer these protections. But they aren't legally obligated to do so. Check the terms and conditions carefully to understand what late fees you might pay, how penalty APRs work, and what policies the card issuer has in terms of rate increases.

2. Credit reporting and credit building

Most consumer credit cards report activity to the three credit bureaus. Cardholders can build credit by making on-time payments and limiting their total balance vs. total available credit. Your personal credit score will likely play a part when you apply for a business credit card. Card issuers will carry out a hard credit check as you are responsible for that account.

But once the account is open, positive activity is usually only reported to business credit bureaus. This contributes to your business credit history. The exception here is any late payments or delinquencies. These can impact both your personal and your business credit -- and if the business fails, you will be personally liable for any money owed.

3. You may qualify for a higher credit limit

The credit limits on a business credit card take into account your personal credit score, the business revenue, and your income. This means you may be able to get a higher credit limit on a business card. If you're looking to fund a big purchase, that higher limit could help, especially as it can be challenging for some small businesses to qualify for loans. Look for a card with a 0% APR and try to pay down the balance before the introductory period expires to avoid interest charges.

4. Rewards categories and perks

Top business credit cards pay high bonus rewards for business spending, such as phone bills, advertising, and office supplies. If you travel a lot for work, perks like lounge access and extra travel insurance may make your card all the more attractive.

Maximize rewards by focusing on cards that reward your spending and business activity. If you don't do a lot of work internationally, for example, avoiding foreign transaction fees might not be that much of a draw. But if you spend a lot on advertising and office expenses, the ability to earn bonus rewards might prove lucrative.

Business cards can help small businesses manage their finances

It's worth knowing that you don't need to own a traditional business to apply for a business credit card. If you're a sole proprietor or have a side hustle that's bringing in extra cash, you may be eligible. And if you have excellent credit, you may be able to qualify for a card with more benefits.

One big advantage of using a business card is that it can help you to keep your company's spending separate from your personal expenses. Indeed, if you use your business card for personal spending, it could come back to bite you. Most cards don't allow it, and in a worst case scenario your card issuer could close your account.

Understanding the difference between a business and a personal card can help you to choose the right card for your situation. Keep in mind that while card issuers don't have to extend the same level of consumer protection, many do. So be sure to check the terms of use before you open an account.