Company credit cards: What you need to know

By , CardRatings contributor
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There seems to be a lot of confusion out there on how to use a company credit card. True, millions of people use them every day without making the news, but in recent months, there have been a lot of local headlines about employees getting in hot water for how they've managed their business credit card.

For instance, last September, as The Chicago Tribune reported, a high school principal in Chicago found himself in trouble for spending almost $17,000 in travel expenses on his Chicago Public Schools credit card. The expenses went toward an international studies program, a fact on which the principal and the school agreed, but the school officials felt the principal purchased a lot of unnecessary personal items with a card meant for business.

And as Forbes mentioned in a story the same month, a Goldman Sachs & Co. employee was sacked in 2010 for making several personal purchases with her corporate credit card from April 2009 to July 2010. Whenever she handed in her expense report, she marked very clearly what items were personal and included a check to cover those personal expenses. She was still fired.

She didn't hide the personal expenses. She reimbursed her employer. She had signed or stamped her supervisor's signature onto the expense reports -- with the supervisor's approval. So what was the problem? Intentionally or not, the employee gave the appearance of trying to pull a fast one on her employer.

So just in case anyone has some questions on how a company credit card works, here are some answers.

How does a company credit card work?

Generally, a company credit card works exactly like any credit card. Company credit cards can max out, have high interest and be abused like any personal credit card. They can also offer low interest rates, 0 APR introductory rates and all kinds of rewards.

One important distinction that small business owners are probably aware of already is that business credit cards weren't affected by the Credit Card Accountability, Responsibility and Disclosure (CARD) Act that passed in 2009. And so consumer credit cards have better protections than business cards, some of which are subject to practices like two-cycle billing, which can make revolving debt more expensive on a business card than on a consumer credit card.

But in general, a company credit card is just like a consumer credit card. With it, if you have a big enough credit line, you can pretty much buy anything on the planet.

Do late payments affect your credit score?

It depends.

"There are different types of corporate credit cards, one in which the company is liable for the payment and one in which the employee is billed directly by the credit card issuer, " says John Ulzheimer, president of consumer education at SmartCredit.com.

If you, the employee, signed the application, with the idea that your employer is reimbursing you or making the payments for you, that's all well and good, but the payment history can affect your credit score.

"If the payments are a little late, it doesn't necessarily mean it'll be reported to the credit bureaus, but if the payment doesn't get paid, they'll track you down and not your employer," says Ulzheimer.

But if your company gave you a credit card without your having to fill out an application, then your credit history can't be hurt -- or helped, for that matter. Still, Ulzheimer says that, "frankly, that's the type of corporate credit card, if you're an employee, that you should want. You don't want the blow back if the card is stolen or if the payments are late or any other problems arise."

It's more common to have the corporate credit card in which your credit score isn't affected at major corporations, says Ulzheimer. With smaller businesses, not so much, and it's easy to understand why if you place yourself in the entrepreneur's shoes.

"If I had just one or two employees, there's no way I would issue credit cards that made me liable for whatever they did," Ulzheimer says. "I don't have the infrastructure." Indeed, plenty of small business owners have been burned over the years by employees entrusted with a company card.

So who gets the rewards?

It's up to the employer, but most companies allow the employee to have them, says Ulzheimer.

In the case of the smaller company, the entrepreneur may be paying the bills, but the employee is taking the risk of putting their name on the credit card and seeing their score go down if a payment is late (conversely, if the payments aren't late, this can be a good way to build credit). It's a credit card that is, after all, in the employee's name, and the employee's good credit is helping the business leverage their money. And so in those cases the employee usually takes the reward spoils.

If we're talking a corporate card with a major conglomerate, the employee has little argument that they deserve the rewards, but "most large companies will allow the employee to retain the reward benefits as a way to thank them for being on the road all the time," says Ulzheimer. But again, it's up to the employer, and there's enough anecdotal evidence out there to suggest that during the recession, some companies, at least midsized ones, were using rewards points for their own gain, as a way to stretch the company's dollar.

But the bottom line with a company credit card is that it's all about the bottom line; a credit card is about serving the greater good of the company and not the employee. If someone working for The Man gets some rewards, all the better, but that's a perk and not part of the job. But if you're tempted to use your company credit card like your own, better think twice and read this article again.


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