How personal and business credit cards differ

Arizona residents who own small businesses may wonder about the benefits of opening a business credit card. There are some important differences between personal and business credit cards. Understanding those differences can help consumers make an informed decision.

Congress passed the CARD Act in 2010 to provide consumers with certain rights regarding their credit cards. The Act does not apply to small business credit cards. One representative introduced the Small Business Credit Card Act to Congress in June 2013 to protect small business owners; the bill is not likely to pass. Therefore, small business owners must know how to protect themselves.

One of the most important things to know is that banks may increase interest rates on small business credit cards at any time. Many small business cards are based on the owner's personal credit and the business owner is personally liable for debts; thus, the card is inherently personal in nature. However, business card holders are not entitled to the same 45 days' notice of changes that consumers are.

With business cards, banks also may allocate payments however they wish. In contrast, banks are required to apply consumer credit card payments to the debt with the highest interest rate. The one benefit to business cards is that they often have better rewards than personal cards for office supplies, in addition to expense management tools. Thus, some business owners may benefit from opening a rewards card for everyday purchases in addition to a low-interest card for funding the business' operations.

A local attorney may be able to help business owners negotiate or resolve debts. It may also be possible to review the business owner's finances to advise on the best course of action. If debt becomes unmanageable, bankruptcy may be the best course of action. An attorney could help to determine which type of bankruptcy is best and file the paperwork for their client.

Source: ABC News, "Small Business v. Personal Credit cards: how they're different", Odysseas Papadimitriou, August 24, 2013

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