With credit card stacking, multiple credit cards act together as an unsecured business line of credit. With typical annual fees of $50 to $100 and APRs of 15 percent to 25 percent, this is relatively inexpensive. Business owners with credit scores of 680+ can use credit card stacking as an alternative working capital funding source.
Small business credit cards are a great alternative way to fund startups. We created a guide of the most popular business credit cards and discussed the pros and cons of using them for this reason. We concluded that small business credit cards are a relatively affordable way to fund startups and low-revenue businesses.
How Credit Card Stacking Works
With credit card stacking, instead of having one unsecured business line of credit that you can use to fund your working capital, you use a “stack” of credit cards to accomplish the same goal. The combined limits of your credit card stack represent your small business unsecured line of credit, which can be used repeatedly.
Because credit card stacking is an unsecured business line of credit, lenders consider this type of lending higher risk. Consequently, most credit card providers prefer to offer financing to business owners with good personal credit scores of 680+ (check your score for free).
Unsecured forms of financing don’t require any collateral—you’re not required to pledge any specific assets as collateral, like your business equipment, home, or retirement accounts. However, you will be required to provide a personal guarantee that you’ll pay if the business doesn’t, meaning there is some risk to your personal assets.
Some additional key things to know about how credit card stacking works are:
- Your Limit Is Revolving: Anytime you draw on your credit limit, you must repay your balance on a monthly basis. Once you repay the amount you borrowed, it will be available to use again.
- You’ll Accrue Interest on Unpaid Balances: If there is a remaining balance on your monthly statement, it will accrue interest until it has been fully paid off. If you need to carry a balance beyond any interest-free promotional period, a term loan is a better option.
- No Collateral Is Required: With an unsecured credit card, like the Chase Ink Business Cash, you won’t be asked to pledge either specific business assets or personal assets as collateral.
- You’ll Need to Provide a Personal Guarantee: A personal guarantee gives your lender the right to pursue your personal assets if your business defaults on a small business credit card or loan.
While there are companies that can do this for you, like LenCred, you can also do it on your own. A credit card stacking company will submit the applications for you in aggregate and can help minimize multiple hard credit pulls on your personal credit report. However, they’ll charge you an annual servicing fee of 8 percent to 15 percent for their services, which can quickly add up.
If you want to do this on your own, you can search and compare small business credit cards through the Fit Small Business Credit Card Marketplace. This can help you decide which credit cards would be best for your “stack.”
Who Credit Card Stacking Is Right For
Credit card stacking is best for those who are looking to fund their startups but may not qualify for traditional business financing options such as SBA loans, a business line of credit, or a working capital loan. Made available to startups and low-revenue businesses, this option is also great for people looking for quick funding.
Credit card stacking is right for:
- Startups: This financing option is perfect for individuals looking to fund their startup and access additional capital quickly. It’s available to most startups since qualifying is often based on your personal credit score.
- Low-revenue businesses: Businesses that are already in operation can still use credit card stacking for funds if their revenues are relatively low. This is a good option for low-revenue businesses because your personal credit score is often used for qualifying and low annual revenues won’t typically disqualify you from this financing option.
- Quick funding needs: You can typically get approved and receive your cards within seven to ten business days.
It’s easier than ever to stack credit cards on your own by using guides such as our small business credit card buyer’s guide or our credit card marketplace. In our buyer’s guide, we discuss who the cards are best for, their costs, reward programs, and where to get them. You can also compare the cards we evaluate through our credit card marketplace.
Cost of Credit Card Stacking
The two main costs of credit card stacking are interest rates and annual fees. Some credit cards offer an introductory period with 0 percent interest for the first six to 18 months. Once this ends, you will owe interest on any unpaid balances. Also, you can expect to pay an annual fee of around $50 to $100, which is sometimes waived for the first year.
The following are typical costs associated with credit card stacking:
- APR: 15%-25%
- Annual Card Fees: $50-$100, sometimes waived for the first year
- Servicing Fee: 8%-15% of your credit limit, if you use a credit stacking lender for their services
Some of the best small business credit cards offer a low or 0 percent promotional interest rate. If you draw on your line of credit and pay back what you borrow in full within the promotional period, it’s like borrowing interest-free. Keep in mind, though, that the amount of interest you pay will vary by card and it’s important to keep track of the interest details for each card.
How to Get Started with Credit Card Stacking in 4 Steps
While you can use a credit card stacking lender, you can also do it on your own and save yourself the expensive (8 percent to 15 percent) annual servicing fees. You can do this by getting pre-qualified, choosing the best credit cards, submitting your applications, and receiving your cards in seven to ten days.
Here are four steps to get started with credit card stacking on your own:
1. Get Pre-Qualified
Credit card providers qualify you based on your personal credit history, type of business, business and personal income, and business credit history. A great way to know if you’re likely to qualify is by checking your credit score to see if it’s at least 680.
If your credit score isn’t strong, you can find a personal guarantor who is willing to allow the bank to rely on their personal credit score and agree to pay the bank back if you can’t. In return, you can provide him or her with some percentage of sales or equity in your business.
2. Choose Your Credit Cards
You can find credit cards on your own that work best for your situation by checking out our list of the best small business credit cards and by visiting our credit card marketplace. We evaluated the 15 best small business credit cards and who they are best for. Through the credit card marketplace, you can compare these credit cards or search for more.
3. Submit Your Applications
The best small business credit cards allow you to apply online and get a decision in minutes. It’s important to know when applying for different cards that multiple hard credit checks could have a negative impact on your credit score. You should limit the amount of cards you apply for to minimize the negative effect.
4. Receive Your Credit Cards
After the credit card providers review your applications, you will receive the cards that you qualify for, which often takes between seven and ten days. These can be used as your business unsecured line of credit to help with funding your startup. Each monthly statement will require you to make at least the minimum payment for each card, and any unpaid balances will accrue interest over the next billing cycle.
Pros and Cons of Credit Card Stacking
Credit card stacking can help you fund your startup by using multiple credit cards to access working capital. The pros include that it’s a good option for new businesses, there’s no collateral required, and the funding process is quick. However, you must have a credit score of 680+, make monthly payments, and possibly deal with interest.
The pros and cons of credit card stacking are:
Pros of Credit Card Stacking
The pros of credit card stacking include:
- No collateral required: Credit card stacking is considered an unsecured financing option. This means that there is no collateral required when opening an account.
- Helpful for new businesses: New businesses may want to look to card stacking as a relatively inexpensive option. It’s available to most startups and low-revenue businesses, since qualifying is often based on your personal credit score. Plus, your time in business and low annual revenues generally won’t disqualify you from this type of financing.
- Quick funding: Another plus of card stacking is how quickly you can access additional capital. You can get funding possibly as quick as seven to ten days and have access to use your business unsecured line of credit.
- Avoid traditional options: Going the route of credit card stacking can help avoid using traditional options to fund your startup, such as borrowing money from friends and family or taking on a partner.
Cons of Credit Card Stacking
The cons of credit card stacking include:
- Good personal credit (680+) required: Although it is a relatively inexpensive way to finance a startup, you need to have a good personal credit score to qualify.
- Interest charges could stack up: if you don’t pay your balances off every month or within a promotional period, it could get expensive fast because the ongoing APRs are often between 15 percent and 25 percent. If you can’t pay the balance off, a term loan would be a better option.
- Monthly payments required: Having multiple credit cards means having to keep track of multiple monthly statements. It’s important that you make payments on time to avoid any late fees or possible interest on the following month’s statement.
Credit Card Stacking Frequently Asked Questions (FAQs)
In this article, we discussed a lot of different information and factors that relate to credit card stacking. Some questions are asked more often than not, and we address those here. If you have other questions, please feel free to share them with us on our Fit Small Business Forum, and we’ll provide an answer.
Here are some of the most frequently asked questions about credit card stacking:
What Is Credit Card Stacking?
The definition of credit card stacking is that it’s a financing option that uses multiple credit cards to act as an unsecured business line of credit. Instead of using the traditional one credit card and one credit limit, you can use two to three as a stack to help access additional capital.
Can I Use Credit Card Stacking to Fund My Startup?
Credit card stacking can be used to fund your startup. By applying for cards with 0 percent APR, it’s like you’re getting an interest-free, unsecured line of credit. This is a good option for startups because you can use all of your available credit without hurting your credit score, as long as you make the minimum payment.
How Can I Maximize My Card Benefits?
Many credit card providers offer reward programs on their credit cards, where you can earn cash or cash points on purchases made. If you are looking to open a card with a reward program, it’s a good idea to know how to maximize those benefits.
Here are five tips to maximize your card benefits:
- Choose the right card: It’s important to evaluate your spending goals and pick a card with a reward program that fits in with your spending goals. Different reward programs give each spending category a different percentage of cash back.
- Pay your monthly bills: Using your card for monthly bills such as utilities or recurring services can help increase your credit spending, which would result in more cash back rewards. Once you have your best card for your spending habits, setting up automatic payments on bills that accept credit cards can make this process easier.
- Best card for everyday purchases: Most cards offer 1 percent cash back on all purchases. However, if one of your cards offers a better percentage on all purchases, be sure to use that as your everyday card.
- Big purchases: If you’re going to make a large business purchase, make sure to use your credit card to earn cash back on the large amount your spending.
- Introductory rewards: It’s common for credit card providers to set up introductory rewards when you open a new credit card. For example, providers may reward you in cash or points if you spend a certain amount of money on the card within the first 90 days. If you take advantage of these introductory rewards, you can earn a pretty good amount of cash back.
What’s the Catch to Credit Card Stacking?
The above all sounds great, but here is the biggest catch if you use a credit card stacking lender: they charge a servicing fee of 8 percent to 15 percent annually on the amount of credit that is being applied for. If you think about it, you are paying a company to apply for credit cards for you.
You can learn about the best cards and apply for them by using our guide to the best small business credit cards and our credit card marketplace. You may have your credit checked multiple times, which may have a small impact on your score, but you will save a ton in servicing fees.
Do You Still Get Points if You Pay Your Credit Card Early?
Yes, you get points if you pay your credit card early. When you use a rewards business credit card for purchases, you earn the same amount of cash, points, or miles regardless if you pay your balance in full before the statement closes or not. However, there are benefits to paying your card early.
Here’s why you may want to pay your card early:
- Utilization: About 30 percent of your credit score is determined by the amount of money you owe versus your total credit limit. This is called your credit utilization ratio. If you allow your statement to close with a balance, you will increase your utilization, which decreases your credit score.
- Stay on track: Budget success is important for all credit card holders. Paying off your card early can help keep you on track with your budget and avoid additional costs such as interest or late fees.
- Maximizing rewards: Being able to pay your credit card balance in full can help you use your credit limit responsibly without worry of missing out on potential rewards. If you can pay your balance down to zero, you’re likely to maximize your rewards over time.
What’s the Difference Between a Secured and Unsecured Business Line of Credit?
The main difference is that with an unsecured business line of credit, you don’t have to pledge collateral (e.g., business equipment, your home, cash, or your retirement accounts), whereas with a secured line of credit, you do. However, you do have to provide a personal guarantee with both, which says you’ll pay if your business doesn’t.
Credit card stacking is an alternative form of unsecured business financing, but it does have its benefits. By stacking multiple credit cards, it’s possible to fund your startup through an unsecured line of credit. Card stacking is a good financing option if you are having trouble qualifying for an SBA loan or want to earn cash rewards.
When considering this inexpensive route to funding your startup, take a look at our guide that outlines the most popular small business credit cards. This guide can help you decide on the cards for your business if you don’t want to go through a card stacking lender.