What happens if you put personal expenses on a business credit card?
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One of the primary reasons we recommend small business owners should get a business credit card is to separate business expenses from personal ones. Since business expenses are generally tax deductible, keeping a wall between personal and business makes it that much easier during tax time — and even more so if the government ever conducts an audit.
But things happen. You pull out the wrong card when making a purchase at the store, or your business trip suddenly expands to include a mini vacation and you’ve already booked the whole thing on your business card.
Aside from having to untangle the spending on your business ledger, are there other consequences? Probably not, although your issuer could close your account if it sees purchases obviously unrelated to your business. While there’s no evidence this is a widespread occurrence, all of the major business credit card issuers say putting personal spending on your business card is a no-no and require you to agree to put spending on their business cards for business purposes only. For instance:
The Business Platinum® Card from American Express — “Each Cardmember acknowledges and agrees that cards are intended to be used for the Company’s commercial or business purposes.”
Capital One® Spark® Cash for Business — You “acknowledge and agree that all cards and convenience checks will be used solely for business or commercial purposes and not for personal, family or household purposes.”
Ink Business Preferred Credit Card — “I certify, understand and agree that … this is a business account which shall be used only for business purposes and not personal, family or household purposes.”
In 2017, Chase even issued a note to some of its business card customers, although it read much more like a reminder than a threat:
“Dear Chase Online Customer:
Thank you for using your Chase business credit card. Please continue to use it for business purchases, but remember that it’s not intended for personal use.
The regulations that cover business cards do not provide the level of protection given to consumer cards. We want you to receive the consumer protections you are entitled to. So, please use a consumer credit card for purchases for personal, family or household use.”
It’s important to note that it’s very hard for a credit card issuer to tell whether a purchase you make is for personal or business reasons, which is likely one of the reasons that this rule rarely ever gets enforced. For example, is that dinner you just charged to your card a romantic date night or a business meeting? Is that new laptop you bought for personal use or for business? Even tickets to a concert or sports game could be for entertaining clients.
Pros/cons of putting all spending on a business card
As TPG pointed out several years ago, one reason why you might consider putting more than just business expenses on your business credit card is to prop up your personal credit score. Since many — but not all — business cards report only to the business credit bureaus, any spend you put on your business credit card will have no impact on your personal credit. This could help keep your utilization ratio low and your credit score high.
But business credit cards generally have fewer consumer protections and higher interest rates and fees. Indeed, many of the consumer protections included in the Credit Card Act of 2009 don’t apply to business credit cards. Issuers have voluntarily extended some protections, but a bill introduced in Congress last year would have:
- prevented issuers from raising interest rates on small businesses without proper notice
- prohibited interest rate increases on existing balances
- prohibited interest charges on debt paid on time
- required any payment over the minimum apply to the balance with the highest interest rate.
It’s unclear if that bill will ever get a vote.
If you pay off your balance in full and on time every month, these proposed protections won’t mean much to you, since they focus on cardholders who tend to carry a balance. That also means there’s little risk in putting at least some of your personal spending on a business card.
Keep in mind, though, you may lose other protections your business card offers if you use it for personal expenses. Chase, for example, offers primary auto insurance coverage when you rent a car for business purposes using the Ink Business Preferred card, but that coverage is downgraded when the rental is made for personal reasons:
“Within your country of residence, if you are renting for personal reasons, Auto Rental CDW is secondary coverage which means it supplements, and applies in excess of, any valid and collectible insurance or reimbursement from any source.”
It’s probably not the best move to consistently put personal spending on your business card. One other thing to keep in mind: Mixing the two types of spending could negatively impact both your personal and business credit if you find yourself in financial trouble. However, if you blur the lines a bit (especially to take advantage of a bonus category or while spending towards a welcome bonus), it’s unlikely to come back to bite you.
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