Small business credit cards are a fantastic way to pay various small business expenses. But if a small business credit card account can be used incorrectly, it may harm your business more than help it. We talked with business owners and business experts to identify essential small business credit card errors to avoid.
Here are 25 small business credit card mistakes every small business owner should prevent:
1. Not Having a Business Credit Card
Julie Pukas, Head of US Bankcard and Merchant Services, TD Bank
A company credit card is a wonderful way to monitor and evaluate your own expenditures, and it also offers the opportunity to earn cash back rewards on your inevitable purchases. But, according to TD Bank’s survey of small business owners, only 46% of these have a business credit card. Not having one means you are missing out on chances to monitor your spending and make rewards on business expenditures.
2. With a Debit Card Rather than a Charge Card
Gerri Detweiler, Education Director, Nav
Business owners who want to avoid debt may get a company debit card thinking it’s the responsible choice. But debit cards offer fewer protections. A business credit card offers complete protection in the event of billing disputes and fraudulent usage. And using a business credit card will help build your business credit, too.
3. Not Choosing Credit Cards that Earn Rewards
Jocelyn Baird, Consumer Advocacy Source, NextAdvisor.com
Not choosing a business credit card that earns rewards is a frequent mistake business owners make. Running a company means you are going to be spending a lot of money, and using a credit card that earns rewards for business-related purchases implies you are getting something back for all your spending. Pick a credit card that earns rewards relevant to your business activity.
4. Leaning Too Much on Credit
Geoffrey Scott, Payments Consultant, PayMotile.com
Most small companies use credit cards to finance the early stages of operation and also to assist with operating capital. But, putting too much on charge in an endeavor to maintain increased equity ought to be avoided. In the event that the business doesn’t take off fast or fails completely, it can have a negative effect on your finances as well as your credit score.
5. Preventing Credit Cards with Annual Fees
Eric Deegear, CMO Chief Marketing Officer, New Man Revolution
1 big mistake that small businesses make with company credit cards is avoiding those with yearly fees. But business credit cards with annual fees can be beneficial since they usually offer you substantial rewards which, when used properly, vastly offset such fees. By preventing yearly fee cards, business owners are losing out to the complete possibility of reward-directed spending.
6. Not Looking For a Low APR Credit Card
Daniel Wesley, Founder, Credit Loan
A credit card with low annual percentage rate (APR) is a good option to use for big purchases. You will be able to save on costs if you’re forced to pay it off in monthly installments, and at precisely the same time, appreciate its perks and rewards. When applying for a small business credit card, be certain that you pick the one where you can save yourself the most.
7. Choosing Business Credit Cards that Report for Your Personal Credit
Josh Feinkind, President, RefinedKind Pet Products
If your personal credit score is important to you, avoid company credit cards which report to your credit profile. If you take a high balance, even in the event that you pay that balance off every billing period, it will still affect your overall usage rate, lowering your credit score. Look for company credits cards which do not impact your personal credit rating. If you’re not sure, ask prior to applying.
8. Using Your Business Credit Card for Personal Expenses
Nate Masterson, Marketing Manager, Maple Holistics
Among the biggest mistakes any small company could make using a credit card isn’t maintaining their private expenses separate from their business financing. Even though you record everything properly and keep a record of both expenditures, it will still create confusion in one way or another. It’s best to get a separate card meant for personal expenses and another for company.
If you are seeking to different business and personal expenses, read our ultimate guides on the best business checking account as well as the best business credit cards.
9. Thinking Your Personal Credit Doesn’t Impact Your Business Credit
Shaun Moise, President, Scope Environmental Remediation
Some business owners that are new to using small business credit cards do not understand that their private credit is a variable when it comes to qualifying for company charge cards. The greater your personal credit score will be that the higher credit limit and reduced rates you are able to obtain for your company. Be certain you be responsible for paying your private credit cards on time.
10. Deciding to Carry a Balance
Dave Barnett, Finance Writer, DavidCBarnett.com
Although running a credit card balance may sound like it’s a normal practice, it’s best to never carry a balance. Failing to cover the full balance yearly, even if you just fall short by 1 penny, could cost you a higher rate of interest or finance charge in your own purchases. This little mistake can lead to excessive fees and extra interest that may significantly increase your total price.
11. Not Using Your Credit Card to Boost Your Big Bills
Landon Howell, Head of Marketing, Plastiq
Most companies don’t have any concept that they can cover some of their biggest, most significant bills like lease payments, vendor dues, and payables to builders with their credit cards, depending on your credit limit. Just make certain to settle your credit card balance when due to avoid incurring interestrates. Using your credit card on big payments can make you larger reward points. But be cautious with this because sometimes it can incur a 3% credit card processing fee.
12. Making Late Payments
Steve Pritchard, Business Advisor, GiffGaff
Do not wait to make a repayment on your small business credit card. Aside from having to pay a late payment fee, this can also lower your credit rating. Credit reports typically indicate late payments in increments of 30 days, so if you’ve got an overdue payment, it will be counted as 30 days overdue — even if it is actually less than this period of time.
13. Spending Beyond Your Company’s Means
Lou Haverty, Chartered Financial Analyst, Financial Analyst Insider
Be aware of your business’s financial situation before you swipe your credit card to pay for your expenses. You should only be using your credit card within your business’s financial ways. Your business needs to have a steady cash flow to have the ability to repay your credit card bills in full every month.
14. Using Cards That Don’t Report to Business Credit Bureaus
One of the reasons why new businesses utilize a business credit card is because they will need to construct their organization credit to meet the requirements for other kinds of business financing. But, according to Entrepreneur, you can find lenders that don’t report your actions to the credit bureaus, which doesn’t always help you build business credit. Make sure to choose a credit card issuer which accounts to the credit bureaus to help build your credit.
To learn more on your organization charge and that reports, it is possible to check out our ultimate manual on company credit scores.
15. Using Too Much Your Available Charge
In accordance with FundBox, using over 30 percent of your available credit on a company credit card may negatively affect your business credit rating. As a result, it tougher for you to be eligible for company financing like small business loans or lines of credit. Should you get qualified, then your interest rate is likely to be higher than it would in the event that you weren’t over-utilizing your available credit.
16. Applying for Too Many Credit Cards
When applying for a credit card, it may activate a tough inquiry together with the credit reporting agencies. While new inquiries have a small impact on a credit score, if you try to apply for too many credit cards, then it may make an impression that you or your company is struggling financially. Creditcards.com states that each question represents a possible new debt, and this might not look good on your credit record.
To learn more, you may read our ultimate guide on the effects of a hard vs. soft credit check.
17. Letting Your Rewards Expire
1 reason to choose one credit card over the following is the benefits program it offers. According to CNN, while some rewards do not come with the expiry date, the others do. For some credit cards, you are usually only given a couple of months to use your rewards or you otherwise lose them. It’s ideal to know both the reward points you earn and until when it is possible to capitalize on them.
18. Employing a No Preset Spending Limit Credit Card
A No Preset Spending Limit (NPSL) credit card does not actually indicate that the card doesn’t have any credit limit. In accordance with WalletHub, it just means that a card spending limit is decided on a month-to-month basis. Usually, the card issuer will not inform you or the credit agencies of your precise limit. This may decrease your credit score due to high credit use.
19. Not Reading the Fine Print
Though fine print is difficult to read and typically hard to understand, it’s important to not dismiss it. It’s necessary to comprehend the terms and conditions of your credit card to find the best price for your company. Find Law suggests that you ought to be aware of the terms for changing interest rates, the implications of late payments, and also the conditions that could affect the way you use the card.
20. Failing to Monitor Your Action
Closely monitoring your transactions is very important, especially with credit card fraud on the increase. Instead of waiting until the close of the month to review your statement of account along with a list of what you spent, The Points Guy recommends checking in on your credit card action on a daily basis.
21. Taking Cash Advances
Some credit card issuers will say that you are”qualified” because of their cash advance programs, which makes it seem like it is a privilege. As stated by Investopedia, choosing a payday advance is a poor idea because you typically begin accruing interest the minute you take the progress. An automated fee of typically between 2% to 5% is charged on the cash loan amount in addition to a higher interest rate in your routine purchases.
22. Spending Just to Get Rewards
Some small companies fall into the trap of unnecessarily utilizing their credit cards to make rewards. According to Credit.com, this might be costing you more than it is worthwhile you, because shifting your spending habits simply to get rewards isn’t going to be as beneficial as you might think. If you overspend and take a balance, your interest charges will probably be higher when compared to your benefit savings.
23. Closing Your Account
Some business credit card consumers close their accounts when they have eventually paid off a high interest debt. However, while getting rid of a credit card might feel great, it can have a negative effect on your credit. As an example, you reduce your available credit line, which increases your credit utilization. Bankrate recommends to keep the account open but use the card very rarely or not at all.
24. Locking Yourself Into One Program
According to Reward Expert, if you’re only going to use one card, it pays to get the one that has transferable points. Some credit cards have been secured into one reward program, for example airline- or fuel-affiliated, earning you points in only one program. Instead, it’s best to earn points with the credit card’s own program with a number of partners, which provides you with flexibility to redeem your favorite reward.
To learn more on credit card reward points, you may read our final guide on how to maximize your small business credit card benefits .
25. The Way To Register Your Company as a Legal Entity
According to Yahoo Finance, if you fail to register your business as a legal entity — such as a limited liability company (LLC) — you will not be building your business credit even when you’re issued a business credit card. Additionally, most card issuers will only issue a business credit card to business legal entities — thus failing to register your company as you will likely make it impossible for you to qualify.
Bottom Line — Small Business Credit Card Mistakes to Prevent
Employing a small business credit card can be helpful for companies with short-term financial requirements and for people that are trying to build credit. However, although a business credit card can be helpful, using it the incorrect way can place you into a lot of trouble. Do not ignore the above small business credit card errors as advised by the experts so that you’ll know what to avoid.
