 What is the difference between business versus personal credit cards? Well, we're talking about it here on the journey. For business owners, understanding business versus personal credit cards is key. And it isn't just a matter of using one credit card for your personal life and another for your business expenses. These are two different products that can have major economic and legal implications for your business. That being said, it's understandable if you have questions. Any of us do, including can use your personal credit card for business purposes or vice versa. What kind of protection or benefits does a business credit card offer? And why can't you just use the same credit card for everything in your life? So let's break down the key differences between business and personal credit cards. We'll discuss each type of card, what you typically use them for and why a business credit card is an invaluable tool for both new and established business owners. Disclaimer, the information contained in this video is provided for general informational purposes only and should not be construed as an endorsement or advice from GoDaddy on any subject matter. Now, first things first, I think it'll help to really break down what is credit. That way we have a little bit of a baseline here, but a credit card is a payment card issue to users that will have the card holder to pay merchants for goods and services with credit now. Then the card holder pays that amount plus agreed upon charges back to the card issuer later. The amount of money you're allowed to spend with your credit card is called fittingly credit. Credit cards exist because people in businesses sometimes don't have the cash on hand to pay for necessities. Most credit card companies offer reward programs, benefits or perks to card users. Some cards may give you cash back rewards that you can redeem for statement credits, gift cards or approved products and some cards give you frequent flyer miles or other travel credits. But before you apply for a specific card, it's definitely worth exploring what kind of rewards it offers. So let's start off with personal credit. So your personal credit score is a reflection of how responsible you've been with the credit that the credit card companies banks and other lenders have extended to you. You're probably familiar with your personal FICO score. If you've ever applied for a personal credit card, take it out alone or even open up an account with a utility company. Your personal credit is tied to your social security number or SSN and is based on your personal spending history. Things like personal credit card, student loans and car loans may all impact your credit score. Your personal credit history is compiled by three major credit card bureaus, Equifax, Experian and TransUnion. And personal credit scores range from 300 to 850 and your score is calculated based on reports from those three major credit bureaus and they'll factor information like payment history, amount of debt you owe, length of credit history, types of credit and new credit. The good to excellent score often means you'll qualify for a lower interest credit and you're more likely to be approved for loans. Now, if you choose it to use a personal credit card for business purposes, that history won't be reflected on your business's credit report and we'll get to that shortly. That means when you go to apply for a bank loan, lenders won't have the full picture of your credit worthiness and as a result may offer less favorable rates for your business loans since you used your personal credit previously. Yeah, so let's talk about business credit like personal credit, business credit is a reflection of your business's ability to pay your debt payments on time and just like personal credit, business loan lenders may review your business credit score if you apply for a loan to fund your venture. So you'll need to establish a strong credit history in order to qualify for the best products and rates. And your business credit score is tied to your employer identification number otherwise known as EIN or business tax ID number and EIN enables the government to recognize your business for tax purposes. And when your business uses business credit cards or apply for a loan, its credit score is affected by on time or delinquent payments. Your business credit history is reported by experience, Equifax and other reporting agencies that deal specifically with businesses. Business credit scores range from one to 100 and the higher the number of the more likely lenders credit card companies and others are to extend your credit. While the method for determining your personal credit score is pretty standard, there is more variation for business credit scores depending on the credit bureau. And that being said, business credit scores are impacted by factors such as credit utilization ratio, payment history, length of credit history, business size, industry risk, et cetera. And if you're looking to grow your business with financing like a long-term business loan or a business credit card with a low APR, it's important to know and improve your business credit score. So benefits of using a personal credit card, so which one do I choose? While business and personal credit cards are largely used in similar ways, a consumer or business owner will put a purchase on their card when necessary and pay it off as soon as possible. There are key distinctions that are important to discuss. One, if you're a sole proprietor or a single member LLC without employees, you're legally allowed to use a personal card for all of your expenses. But just because you can doesn't always mean you should. We'll get into that in a bit. Also, if your business is registered as any other business entity, so Inc or DBA, for example, you have to separate your personal credit card expenses from your business credit card expenses. However, as we've mentioned, when you use your personal credit card, pay off loans on time and pay off your credit card balance on time, your personal credit score improves. Generally, as your credit score improves, your credit limit will also rise. Let's talk about the benefits of using a business credit card, Emma. Yeah, so if you're feeling stopped choosing between using a business credit card and a personal credit card, there are many reasons to use a business credit card instead, to point out the obvious, it keeps business and personal finances separate. I like that part. And keeping your business and personal finances separate is an important principle of running your business. And this is relatively easy to do if you set up a business bank account, which is then distinct from your personal bank account, and use a bookkeeping system to track your business transactions, which is just going to simplify your financial and tax reporting come tax season. Such great advice. And really managing your day-to-day business financing is crucial to maintaining the financial health and integrity of your business. Additionally, applicants often qualify for a higher credit limit with a business credit card, then they would receive with a personal credit card. This is mainly because businesses tend to both make more money and spend more money than consumers do. The higher limit on a business credit card can help you cover those expensive purchases you need to make for your business, and that's a no-brainer. But second, having a higher credit limit on your business credit card might actually help your business credit score. And a stronger business credit score makes it more likely that your business will be approved for business loans and will make it more attractive to investors. So establishing a strong credit history is important for any business. And lastly, I think there's a common misconception that as long as you're using a business credit card, you won't be held personally liable for the debt. Both types of credit cards hold you financially liable. While certain types of entities may protect your personal finances from lawsuits, a business credit card does not protect you from debt. You as the card holder and the business owner are responsible for any credit card debt incurred regardless of whether your card is technically registered for a business or for personal use. And that's why no matter what the type of card or the purpose of your credit card use, it's critical that the business owners use credit cards responsibly. Make responsible purchasing decisions, pay your bills on time every time, and do not take on more debt than you can afford. The bottom line, ultimately, the choice is yours whether to use a dedicated personal credit card or a business specific credit card for your everyday business purchases unless your business entity is anything other than a sole proprietor. And when you're running a business, it makes sense to separate your business and personal finances. And it's also important to understand the differences between business and personal credit and know what business credit cards can do for your business. Ask questions, do your research. And whether you're looking to build credit for a loan to open a new location or you simply want to establish business credit in the event of a rainy day, a business credit card can be a major asset for your business. That's a wrap. You learn what the difference is between business versus personal credit cards. Please comment below and be sure to subscribe to our channel. Make sure you ring that bell so you get these episodes first. This is The Journey. We'll see you next time.