Do I Need a Business Credit Card for My Side Hustle?

Quick Answer

Although you don’t necessarily need a business credit card for your side hustle, getting one can offer some important advantages, including separating business and personal expenses, giving you access to more credit and building a business credit score.

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A side hustle can be a way to earn extra money, a means to pay off debt or your first step into full-time entrepreneurship. But every successful side hustle involves incurring some expenses, which may be easier to handle if you have access to a business credit card. While you're certainly not required to have a business credit card, it can make separating your business and personal expenses easier. It can also build credit for your business, expand your access to credit and offer rewards and perks.

Here's what to know when considering whether to get a business credit card.

Pros and Cons of Business Credit Cards

Business credit cards have both upsides and downsides to be aware of when making your decision.

Pros of Business Credit Cards

  • Easier way to pay: Using a business credit card is safer and more convenient than carrying cash, transferring money from your bank account or writing checks for your business purchases.
  • Access to credit: Business credit cards generally have higher credit limits than credit cards intended for personal use, which makes larger purchases possible. With a business credit card, you won't have to worry about how buying inventory or a new computer affects your personal credit utilization.
  • Separate business and personal expenses: Keeping business and personal expenses separate simplifies accounting and tax preparation. When you're busy with both a job and a side business, keeping track of expenses can be confusing. With a business credit card, you can simply refer to your credit card statements. Accurate bookkeeping also helps prevent costly mistakes when you file taxes.
  • Better manage cash flow: Side businesses sometimes require making investments that don't pay off immediately. Suppose you have to buy materials to make crafts, but don't get paid until the crafts sell. A business credit card gives you a grace period before you must repay what you've spent. If you sell the items before the grace period ends, you can use the revenue to pay off your bill with no interest.
  • Build a business credit score: Business credit scores are different from personal credit scores and are maintained by commercial credit bureaus. When business credit card issuers report your payment history to at least one of the three commercial credit bureaus (Experian, Dun & Bradstreet and Equifax), you'll start to establish a credit score for your business. Using the card responsibly helps build a good business credit score. This can make it easier to get business loans or other types of credit, which is important if you plan to expand your side hustle full time.
  • Rewards and perks: Many business credit cards offer rewards such as cash back or travel points for business-related purchases. For instance, you might get perks for spending on shipping; social media and online advertising; or internet, cable and cellphone bills, for instance. Some card issuers also offer introductory bonuses when you get a new card and spend a certain amount within a set time frame.

Cons of Business Credit Cards

  • High interest rates: Business credit cards typically have higher interest rates than small business loans, personal loans and credit cards for personal use. Because of these higher interest rates, it's best to use a business credit card for purchases you can pay off quickly.
  • Personal guarantee required: Business credit cards generally require a personal guarantee, just as consumer credit cards do. You guarantee that if your business can't pay off the card balance, you'll cover the balance with your personal funds. To protect your personal assets, be careful not to get overextended on your business credit card. Charge only as much as you can afford to pay.

Should You Get a Business Credit Card for a Side Hustle?

Getting a business credit card for a side hustle has its pros and cons. If your side business has minimal expenses, applying for a business credit card may not seem worthwhile. But in addition to the benefits above, weigh the risks of using a personal credit card for business.

When you combine business and personal expenses on one credit card, your balance is more likely to surpass 30% of your credit limit, which can hurt your personal credit score. You also risk damaging your personal credit if your business slows down and you can't pay the credit card bill. With a business credit card, late or missed payments generally won't affect your personal credit score.

A business credit card issuer will only report card activity to consumer credit bureaus if the cardholder personally signed for it. Business credit cards issued in a company's name are reported to the three business credit bureaus: Experian, Dun & Bradstreet (D&B) and Equifax. Ask the card issuer about their policy before applying for a card. If the company reports card usage to consumer credit bureaus, late payments or excessive credit utilization could hurt your personal credit. Conversely, paying on time and keeping credit usage minimal could help your personal credit score.

How to Qualify for a Business Credit Card

Business credit cards are open to all types of businesses, including part-time side hustles. The application process is much like applying for a personal credit card. However, along with personal information such as your name, address, annual income and Social Security number, you'll need to provide the following information about your business:

  • Business name, address and phone number
  • Your industry
  • How long you've been in business
  • Number of employees if any
  • Annual revenues
  • Federal Tax ID: Either an employer identification number (EIN) if you have one, or your Social Security number if you don't

Applying for a business credit card typically generates a hard inquiry into your personal credit report (and your business credit report, if you have one). This can cause your credit scores to drop by several points temporarily. The effect may be more pronounced if you apply for more than one card within a brief time span. You can minimize the negative impact by looking for a business credit card for which you can qualify so you won't have to apply for multiple cards.

Give Your Business Credit

Getting a business credit card typically requires a credit score of good to excellent, which generally equates to a FICO® Score of 670 or above. A lower credit score may qualify you for some business credit cards, but they're likely to feature higher interest rates and fewer rewards. Before applying for a business credit card, check your credit report and credit score to see where you stand. If your score is below 670, paying down high credit card balances, bringing accounts current and making payments on time can help give it a boost so your business can get the credit it deserves.