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Can You Use Your Personal Credit Card for Your Side Hustle?

Sept. 22, 2021
6 mins
A woman wearing overalls holds pottery and looks at a tablet

Canadians are looking to supplement their incomes, whether it’s by joining the gig economy (e.g., delivery drivers and rideshare services), picking up a second job, or starting a side hustle.

According to an Abacus Data poll conducted on behalf of the Direct Sellers Association of Canada (DSA) in July, one in three Canadians has pursued opportunities to make additional income outside their traditional roles.

The survey found that a significant portion of the population (31%) sought opportunities to make more money throughout the pandemic as a result of job loss or a re-evaluation of financial aspirations.

As the economy recovers, more than half of Canadians (60%) intend to seek opportunities to support their income over the next 12 months. For many, this could include a home-based business.

While you may not be ready to join the 2.9 million Canadians who are self-employed, becoming an entrepreneur — even if it’s only part-time — makes you the boss. With the title comes some perks, like making your hours, and many responsibilities, like managing your business-related finances.

One way to keep track of your business expenses is to use a credit card. But first, you must take a few things into careful consideration and follow some simple guidelines.

1. Never mix personal and business spending

Generally, if you make less than $30,000 per year in revenue, you are a “small supplier” in the eyes of the government and won’t need to charge clients GST/HST until your business grows. So, you may start to think other rules don’t apply.

However, to properly track your expenses, you should never mix personal and business spending. While it can be easy to swipe your personal credit card at the cash when buying items for home and your venture, it is best to keep transactions separate so that you can work on building your business credit.

You can use a standard credit card rather than a business credit card for your company’s expenses, as long as all purchases are strictly for the business. Doing so can streamline your taxes and ensure you get any rebates available.

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2. Keep your credit utilization low

Your credit utilization ratio is the amount of credit you use (debt) against your total overall limit (available credit). Experts recommend keeping your credit utilization below 30% to benefit your credit score. If you are using a personal card for business, you’ll have to factor in how your business-related purchases will impact your credit rating.

Say you buy $2,000 worth of material for your design business, and your credit limit is $6,000, you will have used 33% of your available credit. That is over the recommended 30% ratio.

Credit utilization ratio= (your credit usage ÷ your overall credit limit) x 100

Tip: If you plan to make several purchases throughout the month, consider paying down your balance after each transaction rather than waiting for your statement to arrive. That way, you’ll get the shopping coverage and perks of a credit card without negative effects.

3. Pay off your balance in full

While not always possible, it is best practice to pay off your credit card balance on time and in full every month. Interest will start to accrue on the credit card balance otherwise, costing you money.

Most credit cards come with high interest rates. If you’re looking to obtain credit for your business, you may be able to get a small business loan or line of credit, which typically have lower interest rates. Keeping your credit card balance low will ensure payments are manageable.

4. Get rewarded

Most credit cards offer consumer safeguards like purchase protection and travel insurance coverage, as well as rewards and perks.

While most business credit cards offer points or cash back for recurring bill payments, gas, and general office supplies, many personal cards offer great rewards for similar categories. Some lifestyle cards reward cardholders for regular bill payments, travel and transit, and other everyday purchases.

Where they differ, however, is the spending caps. A cap is the total purchases a cardholder can earn an accelerated rate for each year. For example, the BMO Rewards® Business Mastercard®* offers three points for every $1 spent on gas, office supplies, and cell phone/internet bill payments up to $50,000 annually. Earn 1.5 points for every $1 spent after. Business cards typically have higher spending caps than personal cards; however, these limits are usually quite generous for the average consumer.

If your side hustle entails more miscellaneous purchases, you may benefit from a flat-rate reward card. This type of card offers one rate for all purchases rather than specific categories. For example, the SimplyCash™ Preferred Card from American Express offers 2% cash back for every $1 spent on the card.

5. Grow with your business

A standard credit card can benefit your side hustle, but it won’t grow your business credit. Building your business’s credit can help you get a business loan or line of credit in the future if you choose to scale up your company.

A corporate credit card will also come in handy once you have employees. Most issuers allow individual cards with unique numbers to be tied to one account, perfect for tracking employee spending.

While most credit cards allow for authorized users, you can’t normally differentiate who made each transaction. Additionally, the primary cardholder is responsible for all transactions made to the account, apart from fraudulent purchases. You could get stuck with a hefty bill if an employee misuses your personal card as an authorized user since you’ve permitted them access.

How to choose the right credit card for your side business

Having the right credit card can help track your business expenses all in one place, keeping everything organized and ready for tax season. However, the type of card that’s best for you will depend on the size of your company.

Getting a business card usually requires lots of documentation but can help grow your corporate credit rating and protect your personal assets. These cards often feature longer interest-free grace periods and tailored reward categories.

A personal credit card, however, can be straightforward and equally as rewarding. If you keep your personal and business transactions separate and exhibit responsible spending habits, a rewards credit card can offer excellent everyday insurance coverage and perks.

Rates, product information and reward estimates are subject to change at any time and do not constitute financial advice. This post was not sponsored. RATESDOTCA may receive a referral fee from our partners or affiliate links featured on the site; however, our editorial choices are objective and free from bias. The opinions expressed in this article are purely those of RATESDOTCA; thus, the credit card issuers and partners are not responsible for any editorials or reviews that may appear. Please visit the associated brand’s website for complete and current terms and conditions on any product or service mentioned. The information in this article is accurate as of the date of this posting, September 22, 2021. Read our full disclaimer.

Hayley Vesh

Hayley Vesh is a creative, resourceful, and knowledgeable content producer who is passionate about financial literacy, storytelling, and generating ideas. She writes about credit cards, savings, debt management, and personal finance. In her spare time, Hayley can be found wandering in the woods, hunting for second-hand treasures, or curled up with a steeped tea and a good podcast.

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