The Importance of Choosing a Business Credit Card
By Joe Palko on Thu (10/23/08) in E-Commerce Operations | 0 Comments
Every business should have a business credit card. Why, you ask? Because a true business card will NOT post to your personal credit unless you go into “default status.” Also, from a true accounting perspective, business expenses should always be kept separate from personal expenses. Most true “business cards” offer reporting for tax purposes, which helps filing your income tax much easier come year end.
Keeping your business expenses separate from your personal expenses may not seem like a big deal now, but as your business grows, your personal credit score will play a huge role in your ability to acquire business credit.
Banks are moving more and more towards a system of automation, and the “common sense” decision-making that banks used to have the ability to make in the past no longer seem like common sense decisions. Let’s take this example. If you have a personal credit card with a limit of $15,000 and you normally keep a balance of $2,000 on it, and you have a credit score of 720…. Next month, you need money to make payroll. You use your personal card for a cash advance. Suddenly your balance is $14,000. You can expect this to drop your credit score about 50 points. You are now a 670.
You now go to your bank and ask for a loan. The banker tells you, “In order to qualify, you need a credit score of at least a 700”. You explain, “but I will use this money to pay off the XYZ Visa Card, which I used to fund the business.” Guess what the banker is going to say…
“In order to qualify, you need a credit score of at least a 700 - there is nothing I can do if your score is less than 700. It is our policy.” (So much for that vaunted ‘common sense’ decision-making by your friendly banker!) BUT, if you had used a “business” card from the beginning, this card would have never posted to your personal credit report.
Other important factors are “interest rate” and “rewards programs.” Interest rates are usually determined by your personal credit and your payment history. Always try to pay business cards in full each billing cycle. Business cards tend to come with much higher limits than personal cards do. The downside is that once you “rack up” a high balance and it becomes hard to pay off, the bank usually responds with a higher interest rate.
American Express has one of the best programs in existence. Each month, you accumulate points. Your points can be cashed in for traveler’s checks, gift cards, airfare, vacations and more. These programs can help you save a lot of money – both personally and professionally.
The key here is to choose the card which is right for you and your business and keep it separate from your personal finances. Sadly, good credit can take a lifetime to establish, but a week—or a weak decision—to destroy.
