Hidden Dangers of Business Credit Cards

NEW YORK (TheStreet) -- Small-business owners should take precautions when using a business-specific credit card. Understanding personal liabilities and avoiding monthly balances are crucial.

That's the theme emerging from a new report by CardHub.com, a credit-card comparison Web site.

The report examined policies at the 10 largest credit card issuers -- American Express, Bank of America, Capital One, JPMorgan Chase, Citigroup, Discover Financial, HSBC, USAA, U.S. Bancorp and Wells Fargo -- to see who was liable for small-business credit card use and how the cards were reported to major credit bureaus.

The report found that eight of 10 issuers hold the owner personally liable for use of the business credit card. (USAA doesn't offer a card, and information for Wells Fargo was unknown, according to CardHub.com.)

Six of the 10 make it a practice to report business credit card usage to their cardholder's major credit reports, the report found.

Odysseas Papadimitriou, CEO of CardHub.com, found the results alarming, considering there were new consumer protection laws implemented last year under the Obama Administration's Credit Card Accountability Responsibility and Disclosure Act of 2009.

The CARD Act was designed to increase protections for consumers by making credit card terms more transparent and doing away with shoddy card practices, including excessive fees and frequent interest-rate hikes by some banks.

Small-business cards do not share the same requirements as consumer credit cards for transparency and protections, despite the fact that the owner's personal credit history is taken into account for determining lines of credit and they are held personally liable for the cards.

Small-business cards are "exactly consumer credit cards," according to Papdimitriou. "They're just calling them a different name."

"Don't get confused by this marketing campaign that the credit card companies have created by calling them business credit cards. Realize that you are held personally liable for these cards in the same way you are held liable for a personal credit card," he says.

Small-business cardholders tend to have little business credit or new businesses or companies where the owner is so closely tied to the business that it makes sense to credit card companies to look at the individual rather than the business, he says.

He suggests that business owners who carry revolving debt use their personal credit cards to obtain protections. Credit card companies can, in theory, can raise interest rates on business card balances without much notice.

"If you're not going to pay your balance in full every single month, use your personal credit card because you are not taking any risk by doing so and you're getting all the CARD Act protections," he says. "That volatility is something small-business owners cannot take."

These days, banks and credit card companies are looking to attract small-business owners, likely because of the fewer restrictions on the cards.

Yet experts say small-business cards offer plenty of business specific rewards as well as the chance to build business credit history.

Jeff Stibel, CEO of Dun & Bradsheet Credibility Corp., a provider of credit building and credibility services for small businesses looking to establish credit, says small firms should "absolutely" use business-specific cards.