What to Know Before Getting Your Business Credit Card

What to Know Before Getting Your Business Credit Card

Why would you want to get a credit card for your business? Whether you own a neighborhood store or run a small online business, credit cards for small businesses allow you to separate your personal finances from your money-making enterprise. The right card also offers plenty of benefits, like cashback. Although I don’t personally hold one despite having a few side hustles, it’s definitely been on my mind and something down the road I’d like to consider!

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Opportunities for your business

 The term “cashback” was popularized by Discover in 1986. The premise behind it was simple. When you use the card, you get 1 percent of your purchases returned to you. Since then, other companies have started offering cashback schemes of their own, some cards now offer as much as 6 percent cashback on certain types of purchases. 

There are also signup bonuses that banks provide for clients with good credit. Some offer a $100 or $200 bonus for a minimum purchase of a few hundred to a thousand dollars.

Some cards also offer points instead of cash, which can be redeemed for miles. If your business has made you a frequent flyer, or if you personally enjoy traveling for leisure, having a credit card that earns miles is a must. It lets you earn points just by using your card. You can then redeem these points and save on your air travel expenses. Some airlines also allow you to spend your frequent flyer miles into perks, like priority bookings, seat upgrades, and free access to the airport lounge. You’re likely familiar with these types of credit cards on the personal side, but did you know you can also leverage them on the business side?

Peace of mind

Compared to debit cards, credit cards are much more resilient to potential cyberattacks or someone stealing your card information. When someone fraudulently uses your debit card, you lose your hard-earned cash. If you have auto-debit activated for your bills, fraudulent transactions may bring your account down to an insufficient balance. When this happens, your credit score may tank and put your business finances at risk.

With a credit card, you don’t have to worry about this as much. When a fraudulent transaction happens, you can still pay for your other expenses, as long as they don’t exceed your spending limit. Just make sure to report it to your credit card provider immediately to prevent future attacks. 

Additionally, a business credit card makes keeping track of expenses a lot easier. Come financial reporting and/or tax time, it’ll be important to have a good understanding of your personal expenses vs your business expenses. A business credit card makes it a lot easier in that regard – assuming you use it properly for business purchases!

How you credit score can affect your approval

You may be wondering why a personal credit score is needed for a small business credit card, but in many cases it is! Depending on how new or established your business is and how much you have in the bank or earn in revenue, the credit card company will likely check your personal credit score before approving you.

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A good credit score, about 700 and above, is needed if you want to sign up for credit cards with great rewards, interest rates, and sign-up bonuses. Your credit score is an assigned three-digit number that shows how likely you are to pay your bills in full and on-time. The higher your score, the better your chances are of getting a card with great benefits.

A good credit score also determines how favorable the interest rates of your mortgage and business loan will be, if you plan on getting one. After all, you may have to rely on loans to sustain your small business’s payroll when a crisis strikes.

Check your credit score from providers like Experian, TransUnion, and Equifax for a fee. Or, many credit card companies, like Discover also offers a look into your credit score and record for free. 

Beginner credit card options

If you still can’t get your score high enough to get a card with low interest rates and great benefits, you may have to opt for a starter credit card, even for a business card. Your options may be split into the following: 

  • Secured credit card – This is often given to people with limited, or even damaged, credit. To qualify for this, you need to put in a cash deposit. This will serve as collateral, in case you’re unable to pay your credit card bills. Banks often market this as a way to start building your credit score. Mrs. Money got her start with this type of a card, she put down $300 and then had a $300 credit limit!  
  • Pre-qualified credit card – Pre-qualified credit cards often get offered to you via mail or phone. This is because credit card companies work with the credit bureau and other credit score firms to come up with a list of people who meet the former’s credit score criteria. 

The fees

Banks and other credit card companies are required to disclose the fees and terms they provide each customer. These can include your annual fees or what you get charged for every year, the interest rate, possible late fees, foreign transaction payments, and more. Review each term carefully and determine if you can pay for them without breaking the bank. But don’t be turned off by an annual fee – the benefits or perks received might be worth it!

Summary

Getting a credit card for your small business gives you access to a revolving line of credit for short-term requirements and to increase your purchasing power. An ability to spend more could help you expand your services or improve products for customers. The interest rate may be higher than consumer credit cards, but it doesn’t have to affect your finances when properly managed!

Disclosure: Some links are affiliate links that earn me a commission.

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