How Do Business Credit Cards Work?

How Do Business Credit Cards Work

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Your business is its own entity with its own finances.

While many may be focused solely on business income, there’s another area to consider: business credit. 

What Is Business Credit?

Much like you have a personal credit score that determines your ability to get a loan, so too does your business. 

Business credit provides lenders and vendors with insight into your financial trustworthiness. They want to know that you’ll pay them back should they extend a loan your way. 

Business credit differs from consumer credit in several ways. Here are a few key ones. 

  • Business Credit Scores Vary. Consumer credit scores have straightforward, consistent scores. Business credit, on the other hand, will differ depending on the bureau. Cards that report to D&B will have scores of 0 to 100. Meanwhile, others will have scores designed to evaluate delinquency. Business credit scores can vary significantly overall.
  • Business Credit Is Calculated Differently. Some calculating factors are the same across business and consumer credit. For example, your payment history and credit age may matter. However, the risk of your business’s industry and the size of your company may also play a role. 
  • Business Credit Cards Do Have the Potential to Affect Personal Credit. Business credit cards can affect personal credit. This is extremely important to know if you’re considering a business credit card. 

Business credit can be relatively complex for new business owners. 

This is why learning about products like business credit cards is crucial to building credit successfully. 

What do you need to know about business credit cards specifically? 

Benefits of Using a Business Credit Card

Starting your business credit journey with a business credit card can be a solid choice. 

Here are a few of the benefits of using a business credit card. 

Source of Business Financing

Few prospective business owners are going to have all the capital they need to run their businesses at their immediate disposal. 

Business credit is one way to tap into the financing you need. 

From day-to-day purchases to buying some of the equipment you need in your office, a business credit card goes a long way. 

Just make sure you’re utilizing credit responsibly and tracking payments to avoid potential issues. 

Higher Credit Limits

Consumer credit cards have much lower credit limits. Using your card can help you afford larger purchases, but you generally won’t spend tens of thousands at once. 

If you’re a business owner, however, you just might. 

Business credit cards allow you to tap into higher credit limits almost immediately. It’s not uncommon for new small business owners to get $10,000 credit limitsper card.

This offers two benefits. 

First, it makes it so that you can start purchasing some of the bigger items you need for your business. 

Secondly, it allows you to purchase more without going over your ideal credit utilization ratio. 

If you want to hit the ground running, a business credit card can be a major asset. 

Easy to Track Business Spending

Tracking your business spending is essential to staying on top of your finances. 

It’s also important if you’re looking to take advantage of tax deductions when tax season rolls around. 

Purchasing materials or tools with your business credit card makes it easy to stay on top of your spending. 

More importantly, your card may come with essential tools like fraud alerts to help you track and stop unauthorized spending. 

If you limit activity to one card, it can make it much simpler to stay on top of your business expenses starting out. 

Protects Personal Credit

Some cards only report to the business credit bureaus. However, that’s not always the case. 

Unless you sign up for a card with EIN only, you’ll find there are some cards that do report to the personal credit bureaus. 

The key here is to look for cards that report positive activity to the business credit bureaus, and don’t report any activity to the personal credit bureaus.

For example, if you run high balances on your credit cards, that could hurt your personal credit. Because credit utilization is a credit score factor for your personal credit.

But if your business credit card doesn’t report activity to the personal credit bureaus, your business card spending won’t hurt or affect your personal credit at all. 

Which is exactly what you want. 

Rewards and Points

Most credit cards offer some type of incentive to sign up. Business credit cards are no different. 

With the right offer, you can receive rewards and points on expenses you would have anyway. 

This can help you get cash back, travel for free, and save money in your business. 

Just make sure to double-check the terms and conditions. Some promotions only last so long. After this, there might be a limit on how many points you can accumulate. 

Employee Cards

As your business grows, your employees will naturally need to spend money to do their job. 

The good news? 

You’ll be able to ensure they have everything they need with employee cards. 

Employee credit cards allow you to closely monitor employee spending while helping you earn even more rewards. 

If there’s any suspicious activity, you will be able to take the necessary action and rectify it immediately. 

Disadvantages of Using a Business Credit Card

With all this in mind, it’s important to remember that there are pros and cons to business credit cards. 

One of the biggest disadvantages is what an issuer is allowed to do throughout your contract. 

Business owners do not enjoy the protections offered by the CARD Act of 2009. 

Whereas consumers benefit from steady rates, no unforeseen fees, and more, business owners do not. 

This means that terms could change at a moment’s notice. This could lead to greater unforeseen expenditures over the course of your card use. 

While it’s not difficult to navigate, it should be known ahead of time so that you can properly prepare. 

A business credit card is an excellent tool to help you build business credit. 

But knowing how it works is a must before you sign up for one. 

Use this guide to navigate the ins and outs of business credit cards so you can swipe confidently! 


What Is the Purpose of Business Credit Cards?

Business credit cards are designed to help you get funding for your business. 

Small businesses usually have a hard time getting capital. Fortunately, business credit cards are one of the easiest ways to access capital. 

Also, by signing up for the right business credit card, you can establish necessary credit history that will drive your business forward. 

Do You Have to Pay Off A Business Credit Card Every Month?

There are a lot of differences between a business credit card and a personal one. 

However, regular payments are not one of them. 

Whether you pay it off in full or pay off a portion, you will need to make monthly payments. 

If you choose the latter, never carry more debt than you can realistically handle. Also recognize that you will have to pay interest on the remaining amount.

Surprise rate hikes or charges can add up quickly. If you don’t have a handle on your debt, it can have a negative impact on your business credit score. If you have a card that reports to consumer bureaus, the risk is even higher. 

Can I Withdraw Money From a Business Credit Card?

Business cards do offer cash advances. 

Just be mindful of how you use them. 

Cash advances are often accompanied by even higher interest rates and fees.

If you don’t pay back an advance in time, it can put you in debt and hurt your score. 

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