As a business owner, finding the right credit card is an important step in building your business and getting perks and rewards along the way. 

While you can technically use a personal credit card, it’s best to get a business credit card that can offer a higher credit limit, report your payments to the commercial credit bureaus, and give you features that are better tailored to your company’s needs.

But once you have a business credit card, can you use it for personal expenses as well? It’s not technically against the law, but it could cause problems for you down the road. Here’s everything you need to know.

Is It Illegal to Use a Business Credit Card for Personal Use?

No, it’s not against the law to use a business credit card for personal use. In fact, how you use your credit card is governed by your credit card agreement, not any federal or local law.

Your credit card agreement lays out your entire contract with the credit card company. In it, you’ll see the terms that apply to you and your card issuer. 

In the cardholder agreement on a business credit card, you’ll likely see a clause that states that you cannot use your account for personal expenses. Because it’s a business credit card designed for business purposes, business credit card issuers want to keep it that way.

Some example clauses include:

• American Express: “Each Cardmember acknowledges and agrees that cards are intended to be used for the Company’s commercial or business purposes.”
  
• Capital One: “Acknowledge and agree that all cards will be used solely for business or commercial purposes and not for personal, family or household purposes.”
  
• Chase: “You agree that the card is being used only for business purposes.”

Your cardholder agreement may also set limits on which types of transactions earn rewards. For example, you won’t get cash back, points or miles on balance transfers, cash advances, or the purchase of a cash equivalent, such as a money order.

It’s important to read through your credit card agreement carefully to understand what’s expected of you, but it’s also important to understand that the contract is between you and your card issuer.

Also know that while breaking it does have some consequences, they aren’t legal issues unless you commit fraud. 

Consequences That You Can Face If You Do Use a Business Credit Card for Personal Use

For starters, it’s important to keep in mind that credit card issuers don’t keep track of every single charge you make to your business credit card and judge whether it was for business purposes or personal use.

However, if you end up spending a lot in certain categories that tend to be more personal in nature, your account may be flagged for an investigation. If the card issuer determines that you’ve broken your end of the card agreement, there may be serious consequences.

Your Account May Get Shut Down

A common result of a broken credit card agreement is that the card issuer will close the account. There are a few reasons you don’t want your account closed involuntarily.

It Takes Away Your Spending Power

If you’ve been using your business credit card to manage your cash flow, losing it could strain your company’s finances. If you relied heavily on your credit card, it could have a domino effect on your relationships with suppliers and vendors.

It Increases Your Credit Utilization 

If you have more than one business credit card, taking away one will reduce the amount of available credit that you have. 

But if you still have a balance on that card, it’ll still count against you when credit scoring models calculate your credit score. 

If your credit utilization — the percentage of your total available credit that you’re using at a given time — is too high, it could damage your business credit score.

You May Lose Your Rewards  

If a credit card company closes your account because you’ve broken the terms and conditions of your account, it may force you to forfeit any rewards you’ve earned and haven’t yet redeemed. 

This may not happen if you have a co-branded credit card where your points or miles are stored with a hotel or airline loyalty program. But even in that case, there are reports that show even those rewards balances aren’t safe.

You Could Get Blacklisted 

Some credit card issuers maintain a list of customers who have broken their card agreements, and if you’re on such a list, it could be difficult to get approved for a credit card with that same issuer again, even if it’s a personal credit card and not a business card.

If you have a question about whether your usage fits in your cardholder agreement, read through it to make sure.

You’ll Still Be Liable for All the Debt

Small business owners have options for protecting their personal assets. By setting up a limited liability company, for instance, you can limit your personal liability for business legal issues.

However, virtually all small business credit cards require that you agree to personally guarantee any debt you incur on your card. 

This means that if your business can’t afford to pay back the debt, you’ll need to do so with your personal assets. If you don’t, the card issuer can report the default to both the commercial and consumer credit bureaus, and it can damage your business and personal credit scores.

So, if you’re considering putting personal expenses on a business credit card, hoping you can use the business to shield yourself from liability, think again.

Doing Your Taxes Will Be Much More Complicated

As a business owner, you can deduct a lot of expenses that are ordinary and necessary for running your business, and credit card interest is one of those expenses.

But if you’re using your card for both business and personal use and carrying a balance, how do you know how much interest is attributable to personal charges versus business expenses? 

Even with a skilled tax professional, it can be challenging to do the math and maximize your deduction. If you’re subject to an audit, it could result in a higher tax bill and penalties.

Also, mixing your business and personal expenses on a business credit card will simply make it harder to do your accounting, which is necessary for your tax return. 

It can be difficult looking back at your statements to remember which expenses were personal and which ones were for the business. And if you can’t prove it during an audit, it could mean tax trouble.

Your Personal Credit Score Might Also Take a Hit

While many major business credit card issuers don’t report anything to your personal credit reports, there are some that will report to the consumer credit bureaus if you fall behind on your payments. 

Others will report everything to the consumer credit bureaus as if it were a personal credit card.

So if you use your card for personal expenses on top of your business expenses, it could increase your chances of being unable to keep up with your monthly payments. 

If you end up delinquent on the debt or it gets sent to collections, it could cause your personal credit score to drop.

If your card issuer reports all of your account activity to the personal credit bureaus, that could also mean a higher credit utilization rate than if you were to use the card for just business expenses. A high credit utilization rate is generally associated with lower credit scores.

You Won’t Have the Same Protection as a Consumer Credit Card

The Credit CARD Act of 2009 made sweeping changes to the credit card industry, adding a long list of consumer protections for consumer credit card holders. The drawback is that those regulations don’t apply to business credit cards.

For example, if you have a personal credit card, the card’s issuer can institute a penalty APR, which can be as high as 29.99% in many cases, if you’re behind on payments by 60 days. 

Even then, the card issuer is required to notify you 45 days in advance that your interest rate is going up. There’s also a way to get your APR back to normal if you get caught up on payments.

With business credit cards, though, you could trigger a penalty APR if you pay late two times in a 12-month period or even if you miss just one payment. And depending on the card issuer, that higher rate may remain on your account indefinitely.

While some business credit card issuers extend some of the consumer protections from the Credit CARD Act to their cards, that’s not always the case. As such, it’s best to stick to personal cards for personal use to manage your risks.

You’ll Pay More in the Long Term

Business credit cards often have higher interest rates and annual fees than some of their consumer counterparts. By putting personal debt on your business credit card, you could end up paying more in the long run as you work to pay down that debt.

What’s more, the more personal debt you put on your business credit card, the less room you’ll have for legitimate business expenses, which could force you to seek even more expensive business financing options to get the capital you need.

The Bottom Line

Using a business credit card for personal expenses isn’t illegal, but it is usually against the terms and conditions of your account. If your card issuer finds out, there could be serious consequences for your account and any rewards and benefits you get from it.

It can also have a negative impact on your personal finances and credit history. As a result, it’s best to always make sure that you separate your personal finances from your business finances. 

While this may mean getting more than one credit card, simplifying your business finances will make the effort worth it.

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