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.
The Good, the Bad and the Ugly of Credit Scores
When people think about credit scores, the first thing that typically comes to mind is whether it is good or bad.
After all, having good credit score pretty much ensures you’ll be able to borrow from lenders for big ticket purchases like houses and cars. A good credit score can even be useful in helping you obtain certain jobs.
On that same note, having a bad credit score could result in financial misery. Qualifying for loans may be impossible unless you are willing to take on burdensome issues, such as higher interest rates or more substantial down payments. If you want to hold a financial job, a bad credit score could doom your chances.
For these reasons, and more, it’s imperative that you understand how to check your credit score. This includes knowing:
- How credit scores are calculated
- what resources are available to help you with credit issues
- How to choose these resources based on their pros and cons
Here, each of these issues are addressed. The goal is to arm you with as much information as possible so you can achieve and maintain a solid credit score.
Credit Score Defined
Credit scores are simply three-digit numbers that indicate your propensity to pay your bills on time. The main people or outfits are those who loan you money, such as banks and credit card issuers (your credit card debt could factor in, for example).
There are several types of credit scores with the most common being the FICO score. The other is the VantageScore, which was created by the three major credit reporting agencies.
Both use software to analyze your credit report to generate a credit score. The scores give an indication of the likelihood that a person will fall at least 90 days behind on a bill within the next 24 months.
The scores can be surprisingly accurate in reflecting how likely a borrower is to pay their debt obligations as agreed with the lender.
FICO scores are provided by the three major credit bureaus: Experian, Equifax and TransUnion.
How Credit Scores Are Calculated
While you may be keen on the importance of having good credit, you may not understand all that goes into calculating your credit score. It’s about more than you paying your bills on time. There are a variety of other factors that go into calculating your score.
The score has traditionally been calculated based on the information your creditors report about your payment history. Other information includes the amounts of your outstanding debts, and the length of your credit history.
Over the past several years, more lenders are using scoring models that include other factors to determine your credit worthiness. For example, some mortgage lenders may look at your apartment rental and utility payment histories. Your history of paying your mobile phone bill could even be considered to help you obtain credit.
Don’t Take Those Three Digits for Granted
So-called base FICO scores range from 300 to 850. It also has an industry-specific score range from 250 to 900. For example, it tailors scores for the auto lending business.
The first two versions of the VantageScore range from 501 to 990. The updated version uses the same range as FICO — 300 to 850.
No matter if you know your credit score is low or high, you should know your exact number for each of these. This is because there can be erroneous information on your credit report that could easily keep you out of the “good credit” group.
Experian provides the following credit score ranges:
- Poor: 300-579
- Fair: 580-669
- Good: 670-739
- Very good: 740-799
- Excellent: 800-850
Knowing your exact credit score can help you avoid being turned down for loans that you don’t stand any chance of receiving approval for. You can narrow down your options, and hone in on those that are best suited for your credit situation. This is extremely important when you want to make big-ticket buys, such as for a house.
Your low credit score may not prevent you from qualifying, but you’ll likely have to endure some stricter terms. This includes paying higher interest rates or making a larger down payment than you would if you had better credit.
Getting Your Hands on Your Credit Report
There was a time that getting your hands on your credit report was a chore. Not only did you have to contact the individual credit bureaus, but you may have had to pay a fee.
Thankfully, those days are over. There are a host of ways to get your credit reports, as well as alerts when your score moves higher or lower. Many of the services are free.
Among the most popular options are Credit Karma and AnnualCreditReport.com. For a fee, you can get your report and credit-related services at MyFico.
Credit Karma has emerged as a leader in the business of free credit reports. Despite its wild popularity, Credit Karma has a few catches.
Pros of Credit Karma
Let’s take a look, starting with Credit Karma’s pros. The pros include:
- It’s free – well sort of
- It provides alerts when your credit score moves higher or lower
- It features a tool to submit complaints when you find errors, which eliminates the need to go to each bureau
- It makes credit card suggestions based on your credit profile
Cons of Credit Karma
Now to Credit Karma’s cons. The cons include:
- It only provides free credit reports from two of the major credit bureaus: TransUnion and Equifax
- It bombards users with ads for financial products, such as credit cards
- It uses the information from your credit profile to make its recommendations (for credit cards, for example). If you have privacy concerns, this may make you cringe.
- It is paid based on you signing up for one of the offers it promotes on its site, which has raised concerns about its integrity.
Pros and MyFico
MyFico’s pros vary based on the plan you choose. They include:
- It provides paid plans that provide reports from all three major credit bureaus
- It does credit monitoring
- It provides FICO Score alerts
- It provides identity theft monitoring, alerts and dark web surveillance
- It provides fraud resolution and up to $1 million ID theft insurance
Cons of MyFico
MyFico’s cons include:
- It has monthly fees that range between $19.95 and $39.95
- Reviewers complain that the services, such as monitoring, aren’t worth paying for when they are offered for free at other sites
- Also check with your bank. Many of them offer credit monitoring services.
At AnnualCreditReport.com, you are entitled to just one reporting. However, you get the reports from all three bureaus.
Scam Alert: We Can Fix Your Credit!
Many who hear the phrase “credit repair” think it means paying someone to make negative information on their credit reports disappear. There’s no way to have legitimate debts removed from your credit report, no matter what a service many proclaim.
However, if there are erroneous items on your report that are dragging your score down, there are professional services that can help. Visit the CFPB’s site for reputable services.
You can also go it alone by contacting each of the credit bureaus and filing a formal dispute. Your filing should be very detailed. Include specifics about the error, and attach any supporting documents.
Wrapping It All Up
Having bad credit is not the end of the world. However, cleaning it up is quite an effort. This is why understanding the nuances of your credit score and credit report are so important. Don’t take either lightly.