The process of qualifying and applying for a business credit card is the same as personal credit cards. In either cases, the bank or credit card company issuing the card will look at your credit score. They may refer to the credit score of all three major credit rating bureaus Equifax, Experian, and TransUnion or any one of these. The credit card company would then put up a hard inquiry on your credit history that will lower your credit score temporarily. Although named business credit cards these are for individuals only like personal credit cards and not in the name of the business. That means individual cardholder would be personally liable for the debt. So, even if you are using a business credit card for small business, you must be very careful about managing business debt.
The biggest difference
The biggest difference between personal credit cards and business credit cards is that business credit cards do not come under the purview of the Credit Card Act of 2009. The Act aims at benefiting consumers using personal credit cards, which mean that the interest rate on business credit cards can change anytime without any notice. Indeed, this is a drawback for business credit card users who consistently pay interest on their purchases. Personal credit cards have a cap on fees and interest as stipulated by law, but it can be very high for business credit cards.
Business oriented credit cards
Although business credit cards are issued to individuals, it has exclusive business oriented features that benefit small businesses. The rewards accompanying the credit cards are tailor-made according to the nature of business for which you intend to use it. For example, many small business credit cards offer rewards like cash back for travel and office expenses. Besides, some credit cards offer bonus rewards on Wi-Fi and phone bills, which is very encouraging for small businesses. Signup bonuses on some cards are quite attractive, but annual fees might be higher, as much as $450 for some business credit cards. But like personal credit cards, fee waiver for the first year is often available. Both personal and business credit cards have their fair share of pros and cons, but you can manage your expenses to churn out the most rewards.
Consumer protection cover may not be available
The Credit card Act of 2009 extends consumer protection to credit cardholders. Since business credit cards are out of the ambit of the law, business credit cardholders should be ready to cope with no consumer protection. But the silver lining is that most credit card companies extend consumer protection as a courtesy to small business credit card holder which does away with the worries. But the protection might not be available with all business credit cards which you must keep in mind. Talk to the credit card issuer about this aspect before you decide to take the card.
Effect on business credit
Most credit card companies would ask you to sign a personal guarantee for your business credit cards, which makes you liable for the business credit. It means that you would be responsible for the company’s debts in case of missed payments. Although it is a business credit card, many credit card companies consider your personal credit score. They attach a lot of importance to it to decide how much credit they should extend to you. Many small business card issuers report business activity to both commercial and consumer credit bureaus.
Personal credit score is most important
Maintaining a good personal credit score should help you to get business credit cards quickly just as it would for personal credit cards. Keeping a good credit score can often be challenging despite your best efforts due to unforeseen circumstances like medical emergencies. At such times managing the existing debts by making timely payments becomes difficult. It can lead to missed payments or delayed payments that damage your credit score. But even then you have good chances of getting a Legacy Visa credit card that helps to rebuild your credit score. To know more about the credit card have a look at the PFA Legacy Visa Review.
Improve your credit score with personal credit cards
Although business credit cards are attractive because of higher credit limits, it does not help in building your credit score. For most business credit cards, your account history does not get reported to the major credit bureaus except when it is negative due to missed payments or something similar. That means you should never use business credit cards if building your credit score is the goal. And this a significant difference between the two types of credit cards.
Higher credit limits
Business credit cards suit them, most those who make lots of expensive purchases because the credit limits are much higher than personal credit cards. The higher credit limit also ensures that you utilize less credit to fulfill your purchasing goals, and this helps to improve your business credit score. Experian and Equifax use your credit utilization to calculate your business credit score, and lower is the credit utilization higher would be the score. With business credit cards, it might be easy to improve your business credit score.
Choose the card according to your need
Business credit cards are designed to meet various business needs. You must be very clear about your goals to select the right type of business card. Besides the higher credit limit, you must consider what kind of rewards you get and how much useful it would be for your business. For example, if yours is a proprietary small business that uses office stationery sparingly, then the rewards for office expenses might not be much useful for you. Any entrepreneur will surely need a business credit card to establish business credit. Companies that incur heavy office expenses could qualify for the rewards of most business cards.
When using a business credit card, you must have a good system in place to keep a handle on and keep track of credit card spending, which at the end affects the business bottom line. Following the best practices in credit card use should help.