Business credit cards: what you sign and what the CARD Act doesn't cover

A business credit card looks like the one in your wallet. The rules behind it are not the same, and the difference is mostly in what you sign.

The exemption, in the law's words

The Truth in Lending Act, the federal law behind most consumer credit card rules, says it does not apply to credit transactions involving extensions of credit primarily for business, commercial, or agricultural purposes, or to organizations. Regulation Z, its rule, exempts the same things: an extension of credit primarily for a business, commercial or agricultural purpose, and credit to anyone other than a natural person.

The Credit CARD Act of 2009 (Public Law 111-24) wrote its card protections into that same law. Its limit on raising the rate or fees on an existing balance, for example, is written for credit card accounts under an open-end consumer credit plan, and Regulation Z's credit card subpart relates to credit card accounts under an open-end (not home-secured) consumer credit plan. A card issued for business purposes sits outside both.

Regulation Z's official interpretation puts it directly: if a business-purpose credit card is issued to a person, the regulation does not apply, other than its rules on issuing cards and on liability for unauthorized use. A consumer card can even be converted into a business-purpose card, and the result is exempt.

What still applies

• No card you did not ask for. A card may be issued only in response to an oral or written request or application, or as a renewal of or substitute for a card already accepted. That rule applies to all credit cards.
• A cap on unauthorized use. A cardholder's liability for unauthorized use cannot exceed the lesser of $50 or what was charged before the issuer was notified. Where one issuer provides 10 or more cards for an organization's employees, an employee's liability may be imposed only under that same section.
• The rule against discrimination. Regulation B covers business credit, and a business turned down for a card can get the reasons. See business credit denied.

What governs the rest: the agreement

Rates, fees, how and when a rate can change, how payments are applied: on a business card, those come mostly from the cardholder agreement, not from the consumer rules. Read it before you apply and keep a copy. Ask the issuer, in writing if you can, about anything the consumer rules would have settled for you.

The personal guarantee

Many business cards, especially for a young company, ask the owner to sign personally. A guaranty is an assurance of the future payment of another person's debt: if the business does not pay the card, you do, LLC or not. See personal guarantees.

Will it show on your personal credit?

That depends on the issuer and is written in its terms, not in a federal rule this site can point to. Before you apply, ask the issuer and read the application and agreement for:

• whether it checks your personal credit when you apply,
• what, if anything, it reports about the account to your personal credit,
• whether it reports the account to the business credit bureaus at all.

An account that does not report on the business side adds nothing to the company's file (see business credit scores).

Not a way around your Social Security number

A business card application that asks for your Social Security number is asking for it. Putting the company's EIN in its place is not EIN-only credit, and a false statement on an application to a bank or other insured lender is a federal crime under 18 U.S.C. 1014. See EIN-only business credit.

One habit

Pay the card from the business bank account, never from your own. The SBA notes that credit card accounts can help a business make large startup purchases and build its own credit standing.