Do you need a business credit card? Who qualifies and what to know

Most people with income outside a regular paycheck can qualify for a business credit card, but not everyone needs one. If you freelance, consult, sell online or run a side business, card issuers generally treat that as a business, even with no LLC and no revenue yet.

The harder question is whether the trade-offs suit you. Business cards usually require a personal guarantee, approval rests mostly on your personal credit, and several consumer protections from the Credit CARD Act of 2009 generally don't apply to them.

Who qualifies for a business credit card

You don't need a corporation. NerdWallet's guide to business card requirements says anyone who earns money on their own, rather than from an employer, can apply, and that you have a "business" as soon as you start operating. If you haven't formed an entity, your business is a sole proprietorship, which is a valid business type on applications.

Another NerdWallet explainer puts it simply: business cards are available to anyone who earns income outside a traditional W-2 job, including independent contractors, freelancers and people with side hustles.

What issuers do care about is you. Approval for most small-business cards depends mainly on personal credit. At the time of writing, NerdWallet says you generally need good or excellent credit, which it puts at a personal FICO score of 690 or higher, and that requirements generally don't include a minimum revenue or time in business. Standards vary by issuer and change.

What the application asks for

According to NerdWallet, expect to provide:

1. Your name, date of birth and Social Security number, so the issuer can verify your identity.
2. Your address, email and phone number.
3. Your annual income, including all income, not only what the business earns.
4. The business name and contact details. Sole proprietors can use their own name, and home-based businesses can use a home address.
5. Time in business, number of employees (not counting you), industry and business structure.
6. A federal tax ID: an employer identification number (EIN), individual taxpayer identification number (ITIN) or Social Security number, depending on your business.

EIN vs. SSN: which one to use

A sole proprietor can generally apply with a Social Security number in the tax ID field. You don't need an EIN to get approved for most small-business cards.

There are still reasons to get one. The IRS issues EINs online for free and warns that you never have to pay a fee for one. The IRS says you generally need an EIN if you hire employees or operate as a partnership or corporation. NerdWallet also notes that linking a business card to an EIN can help you build business credit.

Keep in mind that an EIN does not separate you from the debt. Most small-business card applications still ask for your Social Security number and still check your personal credit.

The personal guarantee

This is the part many first-time applicants skim. In its 2010 report to Congress, the Federal Reserve Board said small business credit cards typically require a personal guarantee, so both the business and the guarantor, usually the owner, are responsible for the balance. That's why issuers look at the guarantor's personal credit history.

In plain terms: if the business can't pay, you have to. Experian notes that if you can't, missed payments can land on your personal credit report and you could be sued for the debt.

Corporate cards are the main exception. NerdWallet describes them as issued to companies, approved on business financials and usually without a personal guarantee, but they generally require a business entity and strong finances, potentially millions in annual revenue. Most freelancers and small owners won't qualify.

CARD Act protections that may not apply

The Credit CARD Act of 2009 added major protections for consumer credit card accounts. The Federal Reserve Board's report explains that those new rules apply to "credit card account[s] under an open end consumer credit plan," and so do not apply to business credit cards. More broadly, it says the Truth in Lending Act's substantive protections and disclosure rules generally don't cover business card accounts.

The Act's provisions that business cards may not get include:

NerdWallet sums up the practical risk: on a small-business card, your APR could change quickly and penalty fees can be steeper.

Some protections do reach business cards. The Fed's report notes that the ban on sending unsolicited credit cards and the limits on your liability for unauthorized use apply to all credit cards, including business cards. Laws such as the Equal Credit Opportunity Act also cover business card activity.

The Fed also found that some issuers voluntarily applied certain CARD Act rules to business cards, while others said they would not. That report is from 2010, and issuer practices can change. The only reliable way to know what your card does is to read its cardholder agreement.

Separating business and personal expenses

The most practical reason to get a business card is bookkeeping. NerdWallet says a business card helps clearly separate business and personal spending, and most business cards can export transactions to accounting software. NerdWallet also notes that card expenses such as annual fees can be deductible business costs. Check the details with a tax professional.

You don't strictly need a business card to separate expenses. NerdWallet points out there's no law against using a personal card for business spending, though some issuers bar personal purchases on a business card. The Fed's report found that in 2009, 41 percent of small businesses used personal cards for business purposes.

Say you spend $600 a month on business software, supplies and ads. A dedicated card, business or personal, gives you one clean statement each month and twelve at tax time instead of a year of mixed charges to untangle.

Who might not need a business card

• Very occasional side income. If you have a handful of business expenses a year, a separate personal card used only for business can do the same job, with full CARD Act protections.
• People who carry a balance. At the time of writing, NerdWallet says business card interest rates typically range from 18% to 28%, varying by card. Say you carry $5,000 at a 24% example APR. That's roughly $100 a month in interest, more than most small businesses earn in rewards.
• Thin or damaged personal credit. NerdWallet notes very few secured business card options exist. Work on your personal credit first; see our guide to building credit.
• Anyone who doesn't want personal liability. The personal guarantee is close to universal for small-business cards.

How a business card touches your personal credit

Applying usually triggers a hard inquiry on your personal credit. After that, Experian explains that business card activity shows up on your personal report only if the issuer reports it to the consumer bureaus. Some issuers report only to commercial bureaus, and some report only negative information such as late payments. Ask the issuer before you apply. For more on rewards, employee cards and reporting, browse our business credit cards section.

Bottom line

If you earn money on your own, you can likely qualify for a business credit card, using your SSN if you're a sole proprietor. Qualifying is the easy part. Before you apply, be comfortable with the personal guarantee and with weaker legal protections than a consumer card gives you, and pay the balance in full each month so interest doesn't erase the bookkeeping and rewards benefits.