The best credit card rates may save you money on interest, but there are other things to consider when running your company. Business credit cards are a lifeline for many small business owners, but they can also sink your company if you don’t understand how they differ from your personal cards. While business credit cards are tied to your personal credit and operate in many of the same ways as consumer plastic, there are several potential traps you need to watch out for. Understanding the possible pitfalls of business credit card use will protect both your business operations and personal credit profile.
Congress enacted the Fair Credit Reporting Act and the Credit Card Act of 2009 to protect consumers from high interest rates, hidden fees and other questionable practices of credit card companies. However, this legislation does not extend to business credit cards. One area where business cards differ from personal cards is the way in which interest is charged. With consumer cards, rates are limited and card issuers can’t easily raise your rates, unless you begin missing payments or going over your credit limit.
With business cards, your rates can change even though you pay on time each month. Read the fine print of even the best business credit card carefully before you open any business credit card to learn what can trigger an interest hike. In addition, check your interest rate at least each month to see if your rate has increased. If you don’t, you might end up paying higher interest payments for months when you didn’t budget for this expense.
Laws governing the fees credit card issuers can charge consumers don’t protect business owners. Learn what the fees, penalties and interest-rate hikes will be if you miss a payment, make a late payment or go over your credit limit. Assign one person at your company to monitoring your credit card use to ensure multiple employees don’t accidentally make more charges than your credit line. Put one person in charge of making sure your company makes its monthly payments on time.
Credit card companies must mail your personal credit card statements at least 21 days before your payments are due. This is not the case with business cards, and card issuers take advantage of this to trigger late payments. When you receive your business credit card statement, don’t assume you have three weeks to pay it. Make sure you know your payment dates and get your payments in early to avoid fees, penalties and interest-rate hikes. If the card company offers auto pay, set this up so you at least pay your minimum payment on time. This can save you from large late fees and interest rate hikes because your bill arrived when you were out of town or your mail got lost.
When you use a credit card, you can make purchases, transfer a balance or take a cash advance from an ATM. These transactions have different interest rates. Typically, cash advances don’t offer the best credit card rates but rather have the highest interest rates. If you don’t pay your balance each month, banks that issue business cards can choose which balance to apply your partial payment to. This will usually be the balance with the lowest interest rate so the lender can continue to make more money on your higher balances. Before you use an ATM to borrow cash with a business card, check with your card company to learn how they apply your payments. If you have to carry a balance on your card, you might be paying that very high interest rate on cash advances for years.
As you shop for a business credit card, sure you want to look for the best credit card rates, but look at fees and how they will add up based on your business use as well.
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