This article is part of a larger series on Best Small Business Credit Cards.
Business credit cards are powerful tools for accessing business funding and building your business credit. However, when used irresponsibly, they can have an adverse impact on your credit score and finances. Our business credit card tips can help you avoid the common credit card pitfalls so that you can take full advantage of the benefits of using your cards.
Business Credit Card Tips You’ll Learn in This Article
- Charge only what you can afford to pay.
- Pay off your bill every month.
- Use interest-free financing offers to your advantage.
- Spend less than 30% of your limit.
- Use a rewards card that aligns with your spending habits.
- Find a credit card with few fees.
- Stay away from cash advances.
- Monitor your business expenditures regularly.
- Report a lost or missing credit card immediately.
- Know that you may need to provide a personal guarantee.
1. Charge Only What You Can Afford to Pay
To avoid debt accumulating, use your credit card wisely and charge only what you can afford to pay back immediately. Whatever you charge on your card should be paid back in the next billing, or it’ll be charged with an annual percentage rate (APR), which can accumulate over time.
Make sure to only use your business credit card for necessary business expenses that are part of your planned budget. Over credit card usage can lead to excessive debt, which can affect your business and personal credit adversely.
2. Pay Off Your Bill Every Month
It’s best to pay off your credit card bill in full every billing cycle to avoid unnecessary costs. Credit card balances that are carried over to the next billing cycle will be charged with interest rates that can accumulate quickly. Once your balance piles up, it would be more difficult to get out of debt, and this can be detrimental to your business’s overall financial health.
However, if you cannot commit to paying off your bill in full each month, it’s best to find a business credit card that comes with a low ongoing APR to help you minimize your credit cost. Credit cards with low APRs are best for carrying a balance as long as you can manage your finances efficiently and not let your balance accrue excessively.
3. Use Interest-free Financing Offers to Your Advantage
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, or both, and can last for up to 20 months.
Business owners needing to make a large purchase may benefit from business credit cards with 0% APR offers. Also, those who want to consolidate existing debts from other credit cards can take advantage of the best business credit cards for balance transfers, which are best for paying off debts from other high-interest cards. Make sure you repay your balances before the introductory period ends to avoid being charged with the regular APR.
4. 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 monitor your monthly spending carefully to ensure that you only spend less than 30% of your credit limit. Doing so will not only keep your statement manageable but also help improve your credit score by maintaining a low credit utilization ratio.
Credit utilization ratio:
The amount of credit you’re using compared to your total available credit limit, which can be calculated per card or for all the cards your business owns. To improve your credit score, a good credit utilization ratio that ranges from 0% to 30% is recommended.
5. Take Advantage of Credit Card Rewards
One of the advantages of business credit cards is that they offer rewards that can be useful for your business. When choosing the best credit card for your small business, it’s important to consider the type of rewards that are most useful for your company. It’s also great to take advantage of sign-up bonuses if you have necessary expenses that can meet the spending requirements.
Choose a card that offers the type of rewards you prefer to earn.
Rewards can come in the form of cash back as a statement credit or cash deposit, points that can be redeemed as merchandise, and travel rewards that can be used for flights and hotel stays.
To maximize your rewards, it’s crucial to choose a card that offers rewards on expense categories that align with your business’s spending habits. For example, if you spend big in one specific category, such as gas, choose a card that pays more lucrative rewards in that category. However, if your expenses vary across several categories, then it’s best to choose a card that pays fixed-rate rewards on all expenses categories.
Select a rewards card that aligns with your spending habits.
Some business credit cards offer premium rewards on specific spending categories, while others have fixed-rate rewards regardless of expense categories.
If you travel frequently, choose one of the best business credit cards for travel or those that offer airport lounge access. If your business has significant fuel expenses, pick one of the top-recommended business fuel credit cards.
6. Find a Business Credit Card With Few Fees
One of the best tips is to find a card with fewer fees to help minimize your overall credit costs. For example, business credit cards with no annual fees 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 fees so that you can use them to make purchases outside the country without the extra cost. For frequent travelers, you can also take advantage of other benefits these cards may offer, including ongoing rewards and free checked baggage.
Most business credit cards typically come with the following fees:
- Annual fee: from $0 to $695 or more
- Balance transfer fee: From $5
- Cash advance fee: From $5
- Foreign transaction fee: From $0 to 2.7% of the transaction amount
- Late payment fee: Up to $40
- Returned payment fee: Up to $40
- Overlimit fee: Varies per card
- Returned check fee: Varies per card
7. 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, and some issuers even charge higher.
Plus, compared to the regular purchase APR, which is at an average of 18.09%, they often come with higher APRs. According to Bankrate, the average cash advance APR is 24.80%. This is applied to your transaction immediately—regardless of whether you 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 isn’t a good habit. They’re so expensive that you’d rather not utilize this feature of a business credit card.
This is a sample computation for the cost of cash advance using the following details:
- Cash advance fee: $10
- Cash advance APR: 24.80%
If you withdraw $100, you’ll be charged an APR equivalent to $24.80 right away, plus a flat-rate fee of $10. This means you’ll owe $134.80 on your bill for an original withdrawal of $100. This cost will vary depending on the amount of your withdrawal, and it could add up quickly if you use this feature frequently.
8. Monitor Your Business Expenditures Regularly
As a business owner, you need to know your company’s expenses. Most business credit cards come with online reporting tools that allow you to access and monitor your account anytime and anywhere. These can help you keep track of your spending so that you can determine if you are staying within budget or not.
In addition, most business cards also enable you to set certain restrictions on employee cards to prevent misuse. It’s important to monitor your employees’ spending habits to ensure that they are using their cards for approved transactions. Strict monitoring can help you manage your finances thoroughly and make tax season a lot easier.
9. Report a Lost or 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. There were nearly 363,100 reports of credit card fraud in 2021. If this happens to you, it’s crucial to report the incident 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.
Also, most issuers provide access to a 24/7 customer service where you can report a lost, missing, or stolen credit card. Be sure to call your bank directly to ensure you avoid any instances of credit card fraud.
10. Know That You May Need 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 some sort of 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 separate, you may opt to apply for a business card that doesn’t need a personal guarantee. However, there are only a few business cards without personal guarantee, and most of them are charge cards, which require you to pay your balance in full each month.
Did you know?
Most business credit card issuers report your transactions and payment history to the major consumer credit bureaus. If you don’t want your business transactions to have an impact on your personal credit score, consider one of the top business credit cards that don’t report to personal credit bureaus.
Business credit cards are useful if you know when to use them to fund your small 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. If you use your cards responsibly, you can expect 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 in the future.