The Credit Card Act of 2009 put safeguards in place for consumer credit cardholders; however, those same safeguards don’t extend to business cards. As a result, many consumers who take advantage of business credit card offers may put their personal credit at risk. Also, issuers of business credit cards are allowed to change the terms within the first year, which is something most consumers don’t know. Some members of Congress, such as Nina Lowey, a democrat from New York, are asking Congress to extend the same protections for small businesses that they do for consumers.
Even when consumers apply for a business credit card, the individual who signs the application is still personally liable for the management of the account. This is true whether you apply for a business credit card as an employee of a company so you can pay for business expenses or as a small business owner trying to separate your personal and business expenses. Consumers may be confused by this separation. Thedirector of the Pew’s Safe Credit Cards Project, Nick Bourke, blames the advertisements that credit card companies send out to entice people to apply for cards as the cause of this misunderstanding.
You will notice when applying for a business credit card that the application requests your personal information, such as your home address and social security number. When the business credit card is issued, the account shows up on your personal credit report as one of your credit card accounts. Payments and balances on the card are also reported to the credit bureaus and show up on your credit report. All of this means that actions pertaining to the business cards do affect your personal credit score.
Small Business Card Act
U.S. Rep. Nita Lowey proposed the Small Business Card Act to extend credit card protection to small business credit cardholders, as the Credit Card Act of 2009 does for consumers. Some ways that the act would protect business cardholders if it passes into law include:
- Requiring a reason for interest rate increases
- Putting proper notification procedures in place if a credit card issuer intends on increasing the interest rate or terms of the credit card
- Prohibiting interest rate increases on existing credit card balances
- Prohibiting interest charges on debts that are paid by the due date
- Requiring that any payment amount over the minimum payment due apply to the balance with the highest interest rate.
Until changes are made, consumers need to use caution when applying for business cards and make sure they fully understand the limits on their personal protections. Dozens of the top credit card issuers have promotional rates and other incentives on consumer credit cards, according to Credit-Land. These cards may offer a better fit for prospective cardholders since they offer the full protections from the Credit Card Act of 2009.