Paying for Business Expenses Applying for a business credit card is something a small business should seriously consider for itself. Business credit cards can provide a range of benefits to a business. They allow a company to build up credit for better borrowing conditions down the road. They’re also quite easy to apply for. In this article, we’ll go over how to apply for a business credit card and other important points to note. What Is a Business Credit Card? A business credit card is a credit card that is intended for business expenses. These cards are not meant for any individual’s personal use, but they are available to businesses of all sizes. What Is a Business Credit Card Used For? Business credit cards are meant for business expenses, and as such, they come with several perks that you wouldn’t get with a normal credit card. Business credit cards typically have far higher credit limits than normal cards, but they are also harder to qualify for. [youmaylike] As a business phenomenon, business credit cards vary their offers greatly, and certain cards are meant for certain businesses. They are also highly customizable when it comes to individual payment terms. Businesses don't always have consistent incomes like individuals do, and business credit cards handle this problem. These cards are used to gain access to a long line of credit, to control employee spending on business expenses and more. One of their other common uses is to make accounting easier, as putting all business expenses on one separate account makes reporting to the Internal Revenue Service easier. In the end, there are many uses for a business credit card. Why Would I Need a Business Credit Card? You might not need one, but if you run a business, you’ll be leaving money on the table by not at least looking into them. Business credit cards can solve many of the problems business owners face. If you need employees to make purchases for the business, a business credit card is the safest option. These cards can be given to authorized users, a status you can easily give to any of your employees. From here, these cards make it easy to monitor employee spending and spot any discrepancies. You can attach customized user privileges to each card to limit spending and place limits on where the card can be used. As mentioned, if you feel like your credit is too limited, business credit cards are a sure way around low credit. According to the American Bankers Association, the average monthly payment on a business credit card is twice as high as the average payment on a normal one. If you’ve found yourself annoyed with the Internal Revenue Service over the complicated reporting processes for business owners, you’re not alone. This is where a business credit card can solve another problem. Simply handing over your business credit card statements to your accountant will make them love you. It will also provide them with the information they need to predict future spending. Another great use for a business credit card is lifting your liability for debts. Liability for credit card debt is determined by the liability offered by the card. If you’re using a personal credit card for business expenses, you are liable for all debts. On the other hand, if you use a business credit card with commercial liability, your business is liable for any debts, which changes the game. Keep in mind that some cards offer joint liability, which leaves both you and your business liable for any debts. Make sure you know what you’re getting into before signing any paperwork. Lastly, just as personal credit cards offer rewards programs, so do business cards. The main difference here is that business credit card rewards are tailored to your business needs. How to Apply for a Business Credit Card Before you apply for a business credit card, you should make sure you’re eligible. For the most part, you only require the following to be able to apply for one: A legal name for your business. A business structure to apply with, such as a Limited Liability Corporation. An explanation of the nature of your business. You’ll typically be given a list of industry types to choose from. A tax ID number issued by the Internal Revenue Service Your roll in the business you’re representing Various business/financial information including: Annual revenue. Number of employees. Length of time in business. Estimated monthly expenses. If you have this information ready, you can apply for a business credit card. At this point, it would be wise to shop around and find the best option for your business. Your decision on the business credit card you choose will have larger ramifications than your choice of a personal credit card. Applying for a business credit card is much the same as applying for a personal one. There are a few differences, but the main thing to remember is that business credit cards are taken more seriously than normal ones, so you’ll have to face a higher bar of entry. This doesn’t mean getting a business credit card is hard, but it does mean you need to arrive more well-prepared than you normally would. To make things easier, you can prepare for certain obstacles in advance. You may need to sign a personal guarantee that you will pay off any debts. Also keep in mind that if you’re the one applying for a business credit card, and your business doesn’t already have one, they will conduct a personal credit check. It may be best to try to optimize your personal credit if you plan on applying for a business credit card in the future. Some Options at a Glance Here are some of the most popular options for small business credit cards: Chase Inc Business Preferred This is a great option for a few reasons. With the Business Preferred card from Chase Inc, you get 80,000 ultimate reward points when you spend $5,000 with the card in the first three months. The card also provides generic, but highly useful benefits for business owners. Business Platinum Card from American Express The Business Platinum is ideal for businesses that spend a lot on flights and travel. This card offers numerous rewards on flight and hotel expenses and makes sure you get something serious back if you use it for these expenses. Chase Inc Business Unlimited The Chase Inc Business Unlimited offers unlimited 1.5% cash back. While we’ve said enough already, they also offer several other perks that are overshadowed by their first one.
How to Build Credit
Your credit history is a collection of information about your credit cards and loans. Potential lenders, banks, insurance providers, landlords, and even employers can use this information (or parts of it) to determine whether to engage in a business relationship with you.
If you have negative reports in your credit file, such as unpaid damages to a home you rented, late credit card payments, or collection activity on debts you failed to pay, you may have a hard time getting a loan or credit card. Negative reports in your credit file could mean that you'll pay more interest, higher insurance rates, or have difficulty finding a place to rent.
If this is the case, then it’s important for you to start building a more positive credit score. If you’re finding yourself Googling “how to build credit” you’ve come to the right place. In this article, we will look at how to build credit, and why it’s important to do so.
Why is Building Credit Important?
If your credit file doesn't have any negative information, you may have an easier time getting a low interest rate on a credit card. It could be less expensive to get a mortgage or auto loan.
Building credit is one way to show potential lenders, landlords, employers, and insurers that you are trustworthy. Having good credit provides evidence to a business that you will pay your bills on time in the future.
Strategies to Help You Build Credit
Many lenders use the FICO scoring model to determine whether to lend money or extend credit to a new customer. According to Experian, there are general ranges within the FICO credit scoring model that can help you understand how you may be rated by potential lenders.
- 800-850: Exceptional
- 799-740: Very Good
- 670-739: Good
- 580-669: Fair
- 300-579: Very Poor
There's more to your credit profile than your FICO score, though. The information in your credit file about how much you owe, how many accounts you own, whether you've made late payments, and whether you have accounts that have been turned over to collection agencies are important to lenders.
Even if your credit score is "good," having a number of recent late payments in your credit file could make it difficult for you to get approved for a credit card.
Types of Credit
No Credit
What is it: You may not have "bad credit" but if a lender tells you that your credit file is thin, or you haven't established a credit history that includes enough information, you may be unable to get a loan or credit card.
How to fix it: Consider opening a secured credit card. Secured cards can be expensive, so research your options. Choose a card with low interest and no fees. It's a good idea to look for a card that automatically transitions to an unsecured card after you make a certain number of on-time payments. Talk with your bank or credit union about credit building programs. They may be able to extend a small personal loan or low-limit credit card to help you create a positive payment history in your credit file.
Good credit
What is it: If your credit score falls in the range of 669-739, you have decent credit and you may have access to a wide range of credit cards, personal loans, mortgages, and auto loans. You still have room for improvement and working to build your credit and raise your scores will help you get even better terms when you apply for loans and credit cards.
How to fix it: Check your credit types. If you have five credit cards, adding a small personal loan, auto loan, or mortgage to the mix will help you diversify your credit types and may boost your score. Make sure you make every payment on or before the due date. Set up automatic payments to help you stay on track. Making even one late payment on an account that reports to the credit bureaus could drag your score down into the "fair" or "very poor" ranges.
Bad credit
What is it: With bad credit, you may have a hard time qualifying for credit cards and loans. If your score is below 579, lenders may deny your application because you pose a risk of default.
How to fix it: The most effective way to build your credit is by making every payment on time. Focus on the accounts that show up in your credit report. Even if you have late payments in the past, new information "weighs" more in the FICO scoring model's algorithms.
Checking Your Credit Score
Before you can build credit, look at the information inside your credit files. You can access your three credit reports with Experian, Equifax, and TransUnion at no charge once every 12 months.
Visit AnnualCreditReport.com to get access to your credit reports. Check them carefully for mistakes. If you notice accounts you don't recognize, missing information, or other errors, alert the credit reporting agency. They can help you get those errors fixed.
Your credit report and credit score are an important part of your total financial health. Understanding the information in your report and strategically opening new accounts while you make 100% of your monthly payments on time is the best way to build credit.