It is not unusual to see a credit card offered in versions for both consumers and business users. In addition, many business credit cards offer competitive rewards and benefits. Therefore, some people will carry both business and personal credit cards for everyday use. However, business credit cards carry some catches. Let's look at five.
1. They're Exempt From Many CARD Act Protections
The CARD Act was one of the most far-reaching pieces of consumer protection legislation to affect the credit card industry. Yet because those protections were meant to help consumers, lawmakers exempted credit cards used by businesses.
For example, the CARD Act prohibits double-cycle billing, which is when card issuers calculate interest based on the previous two billing cycles, often including transactions that were already paid. Other CARD Act provisions include banning interest rate increases based on information from other lines of credit and unfair payment allocation that credited payments to the balance with the lowest interest rate first. Thankfully, many business credit cards voluntarily comply with some of the CARD Act provisions enforced on consumer cards, but business card users need to closely examine their card's terms and conditions.
2. Business Debt Appears on Your Personal Credit History
Even though you applied for a credit card in your business's name and used its employer ID number, any debt incurred will still appear on your personal credit report. If the debt is substantial, it could increase your debt utilization ratio and hurt your credit score. This is why it's important to regularly check your credit reports for accuracy and monitor your credit scores to see how your habits are affecting your credit. You can check your credit reports for free every year from each of the three major credit reporting agencies, and Credit.com gives you two free credit scores, updated monthly, with an explanation of what factors are influencing them and a plan to help you build credit.
3. The Primary Account Holder Is Always Responsible for Paying
If you use a business card to charge expenses that are to be reimbursed by an employer or a client, the debt is still yours. If your client fails to reimburse you, or your employer goes out of business, you will be stuck with the debt, and any default will severely damage your credit.
Likewise, if you own a small business, and you make an employee an authorized cardholder, you will be personally responsible for paying all of his or her charges. Should a disgruntled employee use his or her card to make personal charges, you must first pay the bank and then pursue the employee to recover any money that you feel you are owed.
4. They Can Be Expensive
Most business credit cards are rewards cards that offer valuable features and benefits, but they also have substantial annual fees. These products can make sense for frequent business travelers, but owners of some small businesses may be incurring unnecessary expenses.
5. The Primary Account Holder Earns the Rewards
Perhaps you have been made an authorized cardholder of a business credit card account. Any points, miles or cash back rewards that are earned will be credited to the primary account holder, not the authorized cardholder. Some employees who are required to use their boss's business card feel that they are being deprived of the rewards that they could have earned had they used their own personal credit card.
Why Your Bank Thinks Someone Stole Your Credit Card
5 Surprising Hidden Catches of Using Business Credit Cards
One reason why Marquis' gas purchases might have triggered a fraud lockdown? Filling their tank is a common first move for credit card thieves.
"Some of the things they look at are small-dollar transactions at gas stations, followed by an attempt to make a larger purchase," explains Adam Levin of Identity Theft 911.
The idea is that thieves want to confirm that the card actually works before going on a buying spree, so they'll make a small purchase that wouldn't catch the attention of the cardholder. Popular methods include buying gas or making a small donation to charity, so banks have started scrutinizing those transactions.
Of course, it's not a simple matter of buying gas or giving to charity -- if those tasks triggered alerts constantly, no one would do either with a credit card. But Levin points to another possible explanation: Purchases made in a high-crime area are going to be held to a higher standard by the bank.
"It's almost a form of redlining," he says. "If there are certain [neighborhoods] where they've experienced an enormous amount of fraud, then anytime they see a transaction in the neighborhood, it sends an alert."
(Indeed, Erin tells me that one of the gas purchases that triggered an alert took place in a rough part of Detroit, which she visited specifically for the cheap gas.)
People who steal credit cards and credit card numbers usually aren't doing it so they can outfit their home with electronics and appliances. They don't want the actual products they're fraudulently buying; they're just in it to make money. So banks are always on the lookout for purchases of items that can easily be re-sold.
"Anytime a product can be turned around quickly for cash value, those are going to be the items that you would probably assume that, if you were a thief, you would want to get to first," says Karisse Hendrick of the Merchant Risk Council, which helps online merchants cut down on fraud. Levin says electronics are common choices for fraudsters, as are precious metals and jewelry.
Many thieves don't want to go through the rigmarole of buying laptops and jewelry, then selling them online or at pawnshops. They'd much prefer to just turn your stolen card directly into cold, hard cash.
There are a few ways that they can do that, and all of them will raise red flags at your bank or credit union. Using a credit card to buy a pricey gift card or load a bunch of money on a prepaid debit card is a fast way to attract the suspicions of your credit card issuer. Levin adds that some identity thieves also use stolen or cloned credit cards to buy chips at a casino, which they can then cash out (or, if they're feeling lucky, gamble away).
When assessing whether a purchase might be fraudulent, banks aren't just looking at what you bought and where you bought it. They're also asking if it's something you usually buy.
"The issuers know the buying patterns of a cardholder," says Hendrick. "They know the typical dollar amount of transaction and the type of purchase they put on a credit card."
Your bank sees a fairly high percentage of your purchases, so it knows if one is out of character for you. A thrifty individual who suddenly drops $500 on designer clothes should expect to get a call -- or have to make one when the bank flags the transaction. If you rarely travel and your card is suddenly used to purchase a flight to Europe, that's going to raise some red flags.
Speaking of Europe, the other big factor in banks' risk equations is whether you're making a purchase in a new area. I bought a computer just days after moving from Boston to New York, and had to confirm to the bank that I was indeed trying to make the purchase. Levin likewise says that making purchases in two different cities over a short period of time raises suspicions.
"I go from New York to California a lot, and invariably someone will call me [from the bank], " he says. Since one person can't go shopping in New York and California at the same time, any time a bank sees multiple purchases in multiple locations in a short period, it's going to be suspicious.