If you run a small company or are thinking about starting one, you have likely been bombarded with business credit card offers. It sometimes seems as if credit card companies can read a person’s mind and know that they are considering starting a business before they even tell anyone. The truth is, opening a business credit card is a good idea. Here are some things you need to know before you choose one:
Why You Need It
There are several reasons, actually. First is that a business credit card is an easy source of financing when needed, without the hassle of applying for a loan. Of course, a line of credit can offer the same thing, but a business credit card can help you build the credit your firm needs to even qualify for a business line of credit. As always, no credit is bad credit, but handling a credit card can help. Also, these cards often offer great rewards including cash back. A line of credit doesn’t usually offer that.
Rewards vs. APR
Ideally, you want to choose a card that offers both great rewards and a low APR. However, depending on how you intend to use the card, one may be more pertinent than the other. For example, if you intend to use the card simply to build credit and plan to pay it off each month, then look for the card with the absolute best rewards. Interest is still important just in case you do end up carrying a balance at some point, but not so much as if you were planning to carry a balance.
If you do plan to carry a balance rewards are still nice, but a low APR is where you want to put your focus. An exorbitant interest rate can completely ruin the “get a card to build your credit” plan, and it will cost so much more in the long run that it may not even be worth it. There are situations where a high APR is unavoidable, but definitely make an effort to seek out the lowest possible, despite rewards offered, even foregoing any rewards all together is necessary to get a lower rate.
Pay Attention to Reporting
Did you know that not all “business” credit cards help to build your business’s credit score? In truth, many business credit cards are just personal credit cards with your business’s name on them. The problem with this is that they do not affect the credit of your business at all simply because they only report to consumer credit agencies, not business credit agencies. That being the case, try to find a card that reports to business credit agencies. There are some that will run a personal credit check and then report to both business and personal credit agencies. While that is not ideal, as the extra credit can change your personal debt to credit ratio and actually knock down your personal credit score, it is better than not building business credit at all. The best case scenario is to find a card that will only report to business credit agencies. They do exist, and they are worth some research.
Visit Biz2Credit to learn more about how we can help you with your small business financing needs.