Get a Business Credit Card
Should you get a business credit card?
Did you know using a personal credit card for your business and putting personal expenses on it is a formula for a bookkeeping disaster?
Unfortunately, statistics show that of the 65% of small businesses using credit cards, only 50% of those cards are in the company’s name.
When it comes to keeping personal and business expenses separate, using a business credit card is by far one of the best tools. “There are plenty of benefits to using a business credit card versus a personal credit card for your small business,” says Alison Rouse, a spokeswoman for Capital One. “You’ll also have access to business-specific benefits, such as employee cards and spending controls, and specialty services tailored to meet small businesses’ needs.”
Did you know if you have a corporation or LLC, it’s critical to treat your business as its own separate legal entity? If you commingle your personal and business expenses, you may lose the very legal protection you gained by incorporating or structuring your business as a limited liability company.
Also, during tax time there’s no better way to demonstrate your commitment to keeping your personal and business expenses separate than by using a business credit card. In fact, you will be able to see all your monthly purchases on your monthly statement, without any need for calculation.
In addition, most card providers will send you a business expense report at the end of the month, allowing you to track payments quickly and easily.
Now before you fill out an online application to get a business credit card, you should consider these five crucial factors:
Factor #1 – Not All Business Credit Cards Build Your Business Credit
This may come as a shock to you but not all business credit cards will help you establish your company’s creditworthiness. Unfortunately, many card issuers do not report payment activity to the business credit reporting agencies. In fact, many of the most popular business credit cards report your payment activity to the consumer credit agencies.
If your goal is to get business credit cards that report only to the business credit reporting agencies than check out our unsecured business credit lines program.
Factor #2 – Not All Business Credit Cards Impact Your Personal Credit
How a business credit card affects your personal credit is an extremely important factor you should pay close attention to. Typically, a business card’s credit reporting policy reports payment activity to the consumer credit agencies.
This means that the purchases, payment activity, and revolving debt your company carries on the business credit card impacts your personal credit reports and credit utilization. So, if you had to make a large purchase on the company credit card it could have a negative impact on your personal FICO® Scores. This happens because the business purchase shows up on your personal reports even though the activity is business related not personal.
The good news is there are card issuers that do not report to the consumer credit agencies. These cards are specifically designed to help establish your company’s credit profile since they report to the business credit agencies instead.
Factor #3 – There are Different Types of Business Credit Cards
When you plan to get a new business credit card, it’s important to review the offers to make sure you get the best business credit card possible for your company. Remember, business credit cards are not a one size fits all.
There are different types of cards such as cards with 0% intro APR on purchases, airline/frequent flier cards, low interest rate cards, cards with rewards, cards that build business credit, etc.
To avoid being overwhelmed with all the cards available in the marketplace, it’s best to decide what business credit card offers are most important for your company. This will make getting a business credit card much easier and less time intensive.
Factor #4 – Your Business Does Not Need an Established Credit File to Qualify
Despite what you may have read, there are card issuers that issue business credit cards for startups and businesses with nonexistent business credit files. However, these types of business credit cards require strong personal credit. Because your business has no credit track record the bank must use a personal guarantor as the company’s cosigner to mitigate its risk.
As a personal guarantor, the bank reviews your personal credit file to assess how creditworthy you are as an individual as a factor decide how much credit the bank is willing to extend to your business. This is also a great way to start establishing your business credit file if the card issuer reports to the business credit agencies.
Factor #5 – Business Credit Cards Provide More Spending Power
The credit limits issued with a business credit card are much higher compared to personal credit cards. This means you have that flexibility to spend more for your business, if you need to. This is especially helpful if you need to make a major equipment purchase or stock up on inventory.
At the end of the day you should get a business credit card in your company’s name that is used strictly for business purposes. With a separate personal and business credit card, each with its own credit limits, provides you more available credit overall for your business and personal life.
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About the author
Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, Business.com, About.com and All Business.com. His articles and blog; Business Credit Blogger.com, have been featured in ‘Fox Small Business’,’American Express Small Business’, ‘Business Week’, ‘The Washington Post’, ‘The New York Times’, ‘The San Francisco Tribune’,‘Alltop’, and ‘Entrepreneur Connect’.