Is That Income Business Income?
If you’re part of the $204 billion gig economy making money from a hobby or as an independent contractor, you may be considered a sole proprietor—a type of unincorporated business owned by a single individual. This additional income may be considered business income, and with it, you can apply for a business credit card as a sole proprietor.
Applying for a Business Credit Card Without a Business
If your gig or side hustle incurs expenses, like supplies or transportation costs, using a business credit card could help you keep those expenses separate from your personal expenses (which is important at tax time) and simultaneously let you earn rewards on your business spending. The terms and conditions of business credit cards may differ slightly from those of personal credit cards, so it’s important to understand the credit card issuer’s expectations and your responsibilities. For example, in applying for a business credit card, you may be agreeing to use the credit card for business expenses only and you’ll still be responsible for repaying your balance—even if you end your profit-generating activities. When you’re applying, be prepared to answer questions about your business, even though it may not be a separate entity. If the classification applies, you may identify your business as a sole proprietorship and use your Social Security number rather than the business’s tax identification number. Other information about your business, including annual business revenue or sales, may be required to complete your application. In addition to business information, you’ll also have to provide your personal information just as with any other credit card application. If you don’t have a separate business entity, your account information will likely be reported on your personal credit report and can affect your credit score and your ability to get approved for other credit cards and loans. You may be held personally liable for any purchases made on the card, which would be the case even if your business were a separate entity. Be fully transparent on your credit card application, resisting any temptation to inflate the numbers so you can get approved. You could be prosecuted for committing fraud if the credit card issuer requests additional documentation and it doesn’t match the details provided on your application.
Risks of Using a Business Credit Card
Business credit cards don’t have all of the protections that consumer credit cards do. For instance, credit card issuers are required to give advance notice and opt-out instructions before raising fixed interest rates on consumer credit cards. The same rule doesn’t apply to business credit cards, which could lead to an unexpected interest-rate increase on your balance. And if your business credit card has balances with different interest rates, the credit card issuer isn’t required to apply above minimum payments to the highest-rate balance, which could lead to more expensive finance charges.
