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Before You Swipe: 10 Important Things to Know About Business Credit Cards

By Larry Alton
Business.com / Accounting / Last Modified: February 22, 2017

As a business looking to improve your credit score, there are a few things that you should know about opening a business line of credit.

Setting up a business credit card account is a great way to facilitate spending across multiple departments.

It helps you to keep track of funds and eliminates messy reimbursements.

Credit cards are definitely handy, but they also present some real dangers, which is evidenced by the fact that the average credit card holder in the United States has a standing balance of $5,100. 

If you have a bad experience with your credit cards, it can hurt your business reputation significantly. As a business looking to ease the accounting process and improve your credit score, there are a few things that you should know about opening a line of business credit first.

Related Article: EMV 101: What You Need to Process Credit Cards Today

1. Unrestricted Use Can Significantly Hurt Your Credit

There must be limits on your card use. Otherwise, spending will get out of control, you’ll face debts that you can’t pay, and your credit will be in desperate need of repair.

When getting a business card, sit down with your accountant to determine the limit that should be put on each card, whose name should be on it, and how you plan to track spending to ensure honest transactions.

2. Eligibility Requirements Look at Both Your Personal and Business Credit History

Unfortunately, just because you’re getting a credit card for business use, that doesn’t mean that you can separate your personal credit history. For small businesses and startups, banks often require that your personal credit score be at least 720.

In addition, you’ll need to show proof that you’re running a reputable establishment that pays its debts. If your business has a history of late or missed payments, you’ll have a hard time getting a credit allowance.

3. Your Personal Name May Be Liable for Debts, Even if It’s on the Business Credit Card

There are different liabilities for business cards depending on the issuer, credit limit, and type of business. Some might offer “commercial liability,” which means that your business is liable for all debts. This is ideal, since you don’t want to go down if your business does. Know your rights and responsibilities before taking out a card for your business.

4. The Payment Terms Can Be Catered to Your Specific Business

Because cash flow isn’t always guaranteed to be the same for businesses, card issuers will often create a business-friendly payment system that prorates payments according to your current cash flow.

When cash flow is high, they’ll require a higher payment, and when it’s low, they’ll knock off some of the expectation. It’s highly recommended that you find an issuer with this kind of payment system in order to stay on top of your debts at all times. 

5. The Rewards That Come With Your Credit Card Are the Best Perks

The great thing about using a credit card for your business is that the business spending can often pay for itself, in a manner of speaking. Card issuers often offer rewards programs that use your racked-up points to go toward purchases on things like swag products, flights, and hotels. The more often you use it, the more you get back.

6. Not All Business Cards Will Affect Your Business Credit Score

Having your credit history reported to your business credit score doesn’t always happen automatically. You’ll need to make sure that your account activity is being reported to the correct bureau if you want it to show up on your business score rather than your personal one.

7. Business Credit Cards Usually Come With Higher Limits

This can be good and bad. It does eliminate worry about running out of funds for hefty purchases. However, it can be a negative thing if you don’t pay it off in a timely manner. This is a problem for 13 percent of businesses, according to the National Small Business Association.

This percent of the population currently carries a balance of $25,000 or more on their credit cards. Another 36 percent have a balance of more than $10,000. This is one trap into which it’s all too easy to fall, but which you want to avoid.

Related Article: The Keys to Business Financing Success

8. Employees Can Have Business Cards Issued to Them as Well

Not all business card must be issued in the employer’s name, which is handy when you have multiple accounts and departments that spend money on a regular basis for your business. The good news is that these extra cards often come free of charge.

9. Accounting Is Much Easier to Handle When Using Business Cards

This is probably the number one reason why businesses choose to issue business credit cards. They help small business owners to separate their personal spending from their business spending, and it takes away the hassle of reimbursements for employees. The monthly credit card statements also help business owners to keep track of spending and to plan for future expenses.

10. Business Credit Can Hurt or Help Your Relationships

It’s not just about being able to pay your debts as an incorporated business. A bad credit history can cause a strained relationship with your company and other venders. On the flip side, a great credit history can strengthen those relationships, setting up a great reputation for business success. 

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