Business credit cards provide many advantages for business owners when used responsibly. They can be an excellent financing option that helps boost your credit score if payments are made on time. However, poor management can lead to accumulating interest, increasing costs, and jeopardizing your credit.
In this guide, we cover 18 tips for using business credit cards that cover responsible usage and card protection, how to maximize benefits, and other business-specific considerations. Following these can help you get the most out of your business credit cards while avoiding common pitfalls.
Financial Management and Responsible Usage
Pay in Full and on Time
Credit cards are the most expensive form of debt if not paid in full on time. The average Annual Percentage Rate (APR) of business credit cards is around 20%. This means if you often carry over balances, you are charged interest that can add up over time. Once your balance piles up, it will be more difficult for you to get out of debt, which can harm your business’s overall financial health.
The only way to enjoy a business credit card and avoid paying unnecessary interest charges is to always pay the full amount due on or before the due date.
Calculate your daily and monthly APR to see how much you’re paying in interest if not paid on time. This can motivate you to pay off your debt faster or help you decide which purchases are worth putting on your credit card. This is calculated by dividing the APR by the number of days in a year (365) and multiplying that number by your outstanding balance.
Let’s say you have a business credit card with an APR of 18%, and the billing cycle is 30 days.
Here’s how the interest would be calculated:
- Convert APR to Daily Rate (DR)
Daily Rate = APR ÷ 365
Daily Rate = 18% ÷ 365 = 0.0493%
- Calculate Average Daily Balance (ADB)
Suppose the daily balances for a 30-day billing cycle are as follows:
- Days 1-10: 1,000
- Days 11-20: 1,500
- Days 21-30: 2,000
To calculate the average daily balance, use the following formula:
- Total of Daily Balance = (1,000 × 10) + (1,500 × 10) + (2,000 × 10)
= 10,000 + 15,000 + 20,000 = 45,000
- Average Daily Balance = 45,000 ÷ 30 days = 1,500
- Calculate Interest Charge
Interest Charge = ADB × DR × Number of Days
Interest Charge = 1,500 × 0.000493 × 30
Interest Charge = 22.19
Based on the steps above, the interest charge for this billing cycle would be $22.19. By understanding how your interest adds up over time, you can make smarter financial decisions.
Buy Within Your Means
Business credit cards often offer higher credit limits than you might need. Always plan your spending carefully and avoid making purchases you can’t afford to pay off by the due date. Treat your business credit card like cash—if you wouldn’t pay for it with cash, don’t charge it to the card.
Spend Less Than 30% of Your Credit Limit
High-limit business credit cards are great for businesses with substantial expenses each month. It’s important to carefully monitor your monthly spending to ensure you only spend less than 30% of your credit limit.
This will not only keep your statement manageable but also help improve your credit score by maintaining a low credit utilization ratio. For options on business credit cards with high limits, check our roundup of the best high-limit credit cards.
Stay Away From Cash Advances
Although most business credit cards allow you to request a cash advance or withdraw cash from an ATM, cash advances are much more expensive than a typical card purchase. Typically, their fees start at $5 or a certain percentage of the transaction amount, whichever is higher.
Plus, compared with the regular purchase APR, which is at an average of 20.93%, they often come with higher APRs. The cash advance APR varies per card but could go as high as 29.99% or more. This is applied to your transaction immediately—regardless of whether you will pay the advance right away or carry it over to the next billing cycle.
Unless you need cash quickly to cover a business emergency, using your credit card to withdraw money is not a good habit. They’re so expensive that you’d rather not use this business credit card feature.
Cash Advance Interest Calculator
Use the calculator below to determine how much interest you will be charged if you make a cash advance. Just enter the necessary information and the calculator will compute your potential interest charges and your total due. Note that this calculator is only for credit cards that charge straight APR.
This is a sample computation for the cost of a cash advance using the following details:
- Cash advance amount: $100
- Cash advance fee: $10
- Cash advance APR: 29.99%
- Number of days you plan to repay: 365 days
| Total amount due | = | Cash advance amount | × | Cash advance APR | × | Number of days you plan to repay it | + | Cash advance free |
| 365 days |
Total amount due = $100 × (29.99% ÷ 365) × 365 + $10
Total amount due: $139.99
In this case, if you withdraw $100, you’ll be charged an APR equivalent to $29.99 for a one year interest, plus a cash advance fee of $10. This means you’d pay $139.99 on your bill for an original withdrawal of $100 if it took you a year to repay.
If you repay in 30 days, then the interest would be annualized. That is, cash advance APR divided by 365 days (for most credit cards) multiplied by 30, which results in a one-month interest of $2.46. Therefore, the total amount due for your cash advance for one month is $112.46. This cost will vary depending on the amount of your withdrawal.
Leverage 0% APR Offers
Most business credit cards offer introductory 0% APR periods that allow business owners to finance a substantial purchase and pay it off within a certain number of months without interest. This means you can carry your balances from one billing cycle to another, interest-free.
These 0% APR offers apply to purchases or balance transfers―some cards come with interest-free financing offers for both―and can last up to 18 months. Check our guide to the best 0% APR business credit cards for some options.
Find a Business Credit Card With Few Fees
One of the best tips for using business credit cards is to find a card with fewer fees to help minimize your overall credit costs. For example, the best business credit cards with no annual fee give you access to financing while earning rewards on your purchases.
Similarly, if your business requires you to travel abroad regularly, you can take advantage of business credit cards with no foreign transaction fee, letting you make purchases outside the country without the extra cost. For frequent travelers, you can also benefit from other perks these cards usually offer, including ongoing rewards and free checked baggage.
Most business credit cards typically come with the following fees:
- Annual: from $0 to $695+
- Balance transfer: From $5
- Cash advance: From $5
- Foreign transaction: From 2.7% of the transaction amount
- Late payment: Up to $40
- Return payment: Up to $40
- Overlimit: Varies per card
- Return check: Varies per card
Credit Card Monitoring and Protection
Know Your Statement Closing Date
The statement closing date is the last day of your billing cycle, and the due date is when your credit card payment is due, typically about 25 days later. By understanding your statement closing date, you can plan your credit card purchases to maximize the repayment period without incurring interest or additional charges. Purchasing right after the statement closing date can give you a nearly 60-day grace period to pay off those purchases.
For example, if your closing date falls around the second week of the month, you might receive your statement a couple of days later. The statement will likely show a payment due date in the first week of the following month. If you make a purchase the day after the closing date, it will be included in the next billing cycle, which ends about 30 days later, with a payment due date in the first week of the following month. This means your purchase from the day after the closing date will have nearly 60 days of interest-free grace period.
Remember Key Credit Card Dates to Stay on Track
Keep in mind the following Important dates to remember for credit cards:
- Billing cycle: The time when your purchases are counted for one bill, usually lasting 28 to 31 days, depending on your card issuer.
- Statement closing date: The last day of your billing cycle. Purchases made after this date will be charged in the next cycle.
- Due date: The date by which you must pay at least the minimum amount due to avoid late fees and interest charges. Typically, this is about 21-25 days after the statement date.
Check Every Detail in Your Billing Statement
Check your bill carefully each time it arrives. Don’t just look at the minimum amount due, outstanding balance, and due date. Note that the statement contains other important details, including a detailed summary of each transaction.
Double-check all your business credit card transactions listed on your billing statement and ensure that:
- The amount charged for each purchase made is correct.
- Your payments, rebates, and other statement credits were recorded properly.
- There are no erroneous or unauthorized charges on your card.
If you see any suspicious transactions, contact your credit card provider right away to resolve them.
Report a Lost/Missing Credit Card Immediately
As a business credit card owner, you can be at risk of fraud when you lose or misplace your credit card. That is why it’s crucial to report a lost or missing card to your provider right away.
The good news is that most issuers make this process simple by letting you lock or replace a lost card through their mobile apps. In addition, most issuers provide access to 24/7 customer service where you can report a lost, missing, or stolen credit card. Be sure to call your bank directly to avoid any risks of credit card fraud.
Monitor Your Business Expenses Regularly
Most business credit cards come with online reporting tools that allow you to access and monitor your account anytime, anywhere. These tools can help you keep track of your expenses, analyze your spending habits, and determine whether or not you stay within budget.
In addition, it’s best to activate credit card alerts so that you will be notified whenever a certain transaction is made. For example, you can set up alerts for transactions amounting to $1,000 or more. Most issuers also send alerts for suspicious activities—and you need to take immediate action when you receive such alerts. If a transaction is confirmed fraudulent, the issuer will reverse the charge and report the fraud.
Create a Credit Card Policy & Set Employee Limits
If you decide to issue employee credit cards, you should set certain restrictions to prevent misuse. Create a company credit card policy agreement that contains all the terms and conditions of using employee cards, including credit limits, allowed transactions, liability, and reporting requirements.
It’s important to monitor your employees’ spending habits to ensure that they are using their cards only for approved transactions. Strict monitoring can help you manage your finances thoroughly and make tax season much easier.
Maximizing Benefits and Rewards
Take Advantage of Card Points and Rewards
Take advantage of the points and rewards that come with some business credit cards. Rewards can be in the form of cash back, airline miles, or points (which can be redeemed for statement credits, travel, or other available items). For options, see our best cash back cards and leading cards for miles.
Always check the terms and conditions of the rewards program, such as caps, expiry, and redemption options to ensure that you don’t miss out on anything important.
Take Advantage of Tax Deductions
Most business-related expenses are tax-deductible, including interest paid on business credit cards, so ensure you take advantage of these deductions to save on taxes. You can deduct interest expenses on business-related purchases that are paid in the same tax year, so be sure to keep all receipts and relevant credit card statements to make your tax filing process smoother.
Keep reading:
Build Credit with Your Business Credit Cards
Using a business credit card responsibly can help build your business credit score. This can lead to more financing options, better loan terms, and higher credit limits in the future. Keep in mind that your business credit is separate from your personal credit, and building both can be a powerful tool for growing your business.
Business-specific Considerations
Use Card Solely for Business Expenses
Ensure you use your business card strictly for business purchases to avoid mistakes when reconciling your accounts. This not only saves time but also makes it easier to manage your cash flow and get accurate financial reports.
Connect the Card to Your Accounting Software
Accounting software can link your business credit card to automatically track and categorize expenses, keeping things organized. To connect your business credit card, just go to the “banking” or “connect account” section in the software, select your credit card provider, and enter your card details. Once connected, it will sync your transactions in real time, saving you time on manual entries and helping you manage your finances more easily.
Be Prepared to Provide a Personal Guarantee
To qualify for a business credit card, most credit card issuers will typically require a personal guarantee from the business owners. A personal guarantee acts as protection for the issuer so that in case your business is unable to pay its debts, the issuer can go after you and your personal assets. To prevent this from happening, you have to spend responsibly, make consistent on-time payments, and manage your employee spending.
If you want to keep your business and personal expenses and assets totally separate, you may opt to apply for a business card that doesn’t require a personal guarantee. However, there are only a few business cards without personal guarantee and most of them are charge cards, which need to be paid in full each month.
Bottom Line
Business credit cards are useful if you know when to use cards to fund your business. Our business credit card tips can help you unlock your card’s full benefits, avoid common credit card mistakes, and allow you to take advantage of quick and easily accessible financing. Use your cards responsibly to improve or build your credit score, receive higher credit limits, and establish a business credit history that can help you qualify for other business financing options.