A business credit card can build your credit profile, improve your business’ cash flow and help you make essential purchases for your company. However, if your personal credit score has taken a hit or two, qualifying for a business credit card can be challenging, but not impossible. We’ll explain options small business owners with less-than-stellar credit can pursue to obtain a business credit card.
When assessing a business borrower’s creditworthiness, the card issuer considers income from all sources. However, the borrower’s personal credit score dictates whether the applicant will be approved and how much interest they will pay.
Credit card issuers look for a good credit score (670 to 739 and above, according to the FICO Score range) when assessing a business borrower, just as they do when individuals apply for a personal credit card. The higher the score, the more creditworthy they consider the borrower.
The lower the score, the riskier the business owner appears. (Scores ranging from 580 to 669 are considered fair, while scores ranging from 300 to 579 are considered poor.)
“Those with bad credit will have a difficult time getting a credit card since there aren’t a lot of cards aimed at that particular segment,” said Gerri Detweiler, author and expert on small business finance. “There are some issuers that will issue (credit cards) with a 600 score, which is not a bad credit score but not a great credit score.”
The credit score requirement will vary among issuers, but many business credit card companies require a credit score of 675 or higher. That’s not to say there aren’t options for borrowers with poor credit scores, such as those hovering around 600.
If you’re applying for a business credit card with bad credit or no credit history, consider applying for a secured business credit card. A secured card is a viable way to improve your credit score and access credit.
Secured business credit cards have the following parameters:
“Payment history accounts for 35% of your credit score,” said Barry Coleman, vice president of counseling and education programs at the National Foundation for Credit Counseling. “Business owners would be wise to make on-time payments.”
Aside from the deposit requirement, secured credit cards are similar to unsecured credit cards: There’s an annual percentage rate (APR), an annual fee and potentially other charges.
If you don’t want a secured card but still want to rebuild poor credit (or establish a good credit history if your business is new), consider applying for financing from a vendor.
“There are a number of business suppliers, most notably office and industrial supply companies, that are a little more lenient when it comes to using credit,” said Coleman. “Businesses [that] secure an account with one of these and make sure to pay invoices on time will improve their credit.”
The purchasing limit may be low to start with but, over time, it increases if you meet your obligations. “There are a number of companies that offer these types of accounts,” noted Coleman.
Despite some business credit card issuers being more cautious about who they approve, there are cards for business owners with bad credit. Consider the following options.
Spark 1% Classic from Capital One is geared toward business owners with less-than-stellar credit. It considers applicants with credit scores as low as 580. You aren’t required to make a deposit with this card, but you will pay a hefty APR. At last check, the APR was 29.74% for purchases and cash advances.
There are no annual fees and you earn 1% cash back on every business purchase. You can redeem points at any time, regardless of how many you’ve accumulated.
Capital One reports your payment history to all three credit bureaus (Equifax, Experian and TransUnion). That means your personal and business credit scores get a boost every month you pay on time.
The Bank of America Business Advantage Unlimited Cash Rewards Secured card helps establish and strengthen your business credit. It requires a security deposit of at least $1,000 and provides 1.5% cash back on your purchases, which you can use toward your credit card balance.
There is no annual fee and your account will be reviewed periodically to see if your credit limit can be increased. Potentially, you could transition to an unsecured card. The APR is currently 26.74%, with a 4% balance transfer fee. The card comes with cash flow management tools and travel and emergency services and can even help you monitor your business credit score for free.
The Ramp card is unique because it doesn’t require a personal credit check or a founder guarantee. It provides 1.5% cash back on purchases and integrates easily into most popular accounting software programs and other must-have business tools like Gusto and Workday.
If you want employees to have corporate cards, you can control and monitor their spending. It simplifies expenses and automatically collects receipts to make expense reports easier.
Robust software identifies duplicate transactions automatically and gives you information that can help you get a better price. The card has no annual fee, a 0% APR and a $250 welcome credit upon approval. Freelancers and sole proprietors are not eligible for approval.
Annual fees, APR, consumer protection and customer service tend to be the most crucial business credit card considerations:
Business credit card options are limited for owners with bad credit. However, using an approved secured or unsecured card responsibly yields multiple benefits. Your credit score and maximum limit will increase, and you can qualify for other business credit cards and other business funding options.
Here are four best practices for improving your credit after getting approved for a new secured or unsecured business credit card:
To maximize your credit-building progress, avoid the following common mistakes:
Jennifer Dublino contributed to this article. Source interviews were conducted for a previous version of this article.