In this Post:
- Mixing Personal and Business Credit
- Clean Up Your Credit History First
- Be Careful of the Differences
The best business credit cards have low interest rates, but that only matters if you plan to carry a balance. Credit card fees for small business are pretty important, but what else do you need to look for?
If you’ve got a small business and have been using your personal credit cards or cash to pay some or all of your expenses, it might be time to consider opening a business credit card. With a business credit card, you can increase your working capital, look more professional and earn bonus points that can help trim your business expenses.
Unlike a bank loan, best business credit cards are easier to obtain, don’t require you to put up assets as collateral, allow you to keep accessing your credit after you pay off balances, can be used to make online purchases and provide business-related rewards for your company. The best business credit cards offer a variety of benefits over personal cards that include:
- Larger credit lines as your business grows
- Low interest rates
- A chance to build a credit rating for your business
- Easier record keeping for tax purposes
- Reward programs on office supplies and equipment
Mixing Personal and Business Credit
Business cards include your company name on the card and invoices come to your business address. However, when you first open a business credit card, you will most likely have to use your personal credit history to obtain the business card. Business credit cards for small businesses are tied to the owner’s personal credit. This means if you have a low credit score or bad credit history, you might not be able to obtain a business card.
If your personal credit history is good (you would have no problem getting another personal card), you shouldn’t have a problem opening a business card. However, your business card use will be tied to your personal credit. If you miss a payment, are late with one, charge more than your account limit or default on your business card, this will show up on your personal credit report, damaging your personal credit worthiness. This can be especially dangerous if you plan on allowing employees to use your business card.
If your business is big enough, you might be able to open a business credit card that doesn’t put you on the hook, personally, for business charges. Talk to the card issuer and get the terms in writing, looking for the terms “commercial liability” (which makes only your business responsible for charges) and “joint and several liability” (which makes you personally responsible for the business card charges.
Clean Up Your Credit History First
Check your credit report before you apply for a business credit card to make sure there are no errors on your credit history. Visit Annual Credit Report to get your free credit reports from the three major credit reporting agencies, Experian, Trans Union and Equifax. Follow the steps at their websites to challenge any incorrect information you find on the credit reports they have for you. Take a look at your credit score to determine if you need to pay down one of your cards to boost your score, which can make it easier to obtain a new card.
The Best Business Credit Cards: Be Careful of the Differences
Business credit cards do not fall under the Fair Credit Reporting Act or the Credit Card Act of 2009, which means the laws that protect you when you use a personal credit card don’t apply to your business card. For example, business credit card issuers can raise your interest rates without warning, charge much higher fees than with consumer cards and apply your payments to whichever balance they choose (usually the one with the lowest interest rate). Read our post on the difference between business and personal cards (Business Credit card perks) to learn the differences and how to avoid racking up high interest payments and fees and damaging your credit.