Thu. Nov 30th, 2023

Small businesses are contributors to the country’s economy. Typically, their financing options are associated with challenges. One of the commonly chosen tools to combat the situation currently is credit cards. They provide multiple benefits and require efficient and wise usage to properly leverage their full potential. Helping you in harnessing the power, we offer different methods to leverage the power of credit cards wisely. Also, a quick trick is to use the cibil score app to perform the cibil score check free and adopt measures to uplift your score if it goes down. 

What is a Business Credit Card?

A credit card specifically designed to meet the needs of business owners is a business credit card. The offers and benefits are suited to their expenses and come along with higher credit limits, expenditure, and employee card management tools and offer greater reward potentials. Like personal credit cards, the action to use the cibil score app to perform a cibil score check free for small business credit cards must always be continued and be regular. 

Methods to Use Business Cards Wisely

Go through the following points to understand the wise methods for using the business card. Ensure to use them depending on your situation and needs: 

Separate Your Personal Cards 

Keep a record of every expenditure. Using personal cards for minor business goes to unattended expenditures that are never accounted for. It raises complications and inhibits proper usage of the business credit card. Some of the business credit cards offer to aid in such measures as well by providing features such as automated end-of-year summaries, purchase records, and expense tracking. Their rewards serve benefits to meet and save expenditures. 

Choose the Right Credit Cards

Similar to choosing the right card suiting personal lifestyle and expenditure habits, the rule fits for business as well. The choice of credit card varies. For instance, travel rewards cards are suitable for businesses involving international and national meets, conferences, and others by providing lodging, car rental, airfare, and others. Businesses dealing with supply-heavy businesses will find cashback offers on purchases at office supply stores more suitable. Some cards offer points on standard expenses such as cable, cell phones, and internet. The right choice is a credit card that meets your exact requirements. 

Be Strict In Payments

Be ready to pay down the balance as quickly as possible to avoid ending up in debt. If you see strictness in this aspect, you can also opt for a ‘charge card’ that offers similar features to credit cards along with more timely payment rewards. In case of a lack of confidence or ability to pay the bill, low-interest cards minimize the bill expenses carried forward to add in the next bill cycle. 

Utilise Instant Rewards

Remember that rewards come with an expiry date. Using them within the stated time period is required to actually leverage the benefits. So, be active and mindful of the rewards and their usage. 

Strictly Monitor The Expenditure

Using credit cards to randomly pay off every bill is an illogical and careless approach. Credit cards should never be considered a last resort or used without thought. The cardholders must only use it till they can pay off the bills. The revolving credit approach of credit cards will end up the business card holders in the loophole.  

Build Credit Score

Business credit cards have a significant impact on building credit scores. Besides loans, the credit score can also affect business growth. It can be a criterion among partners or suppliers to commit to businesses with certain credit scores to ensure proper cash flow. The amount of loan, interest rates, and other parameters are also decided depending on the credit score. Both organizations and lenders seek proof to rely on for further business. 

Review Statements 

Whether automatic payments are enabled or not, reviewing the statements in both situations is important. The wrong payments due to technical glitches can be reflected anytime. You will need timely action to avoid exhibiting the same on your credit report. Additionally, it also helps to identify any fraudulent activity and protect your credit score and income. 

Link the Account 

A small business credit card must be registered with an Employer Identification Number or the company’s Tax ID. It will link the account and affect the credit score, thus building trust and credit report. Pay the bills on time, which can also include at least paying the minimum balance if overall clearing is not possible. 

Credit Utilisation Ratio

Maxing out the credit card is among the list of don’ts. Also, avoid carrying the balance for longer, as reflecting these activities on credit reports isn’t a favorable idea. Stick to the credit utilization ratio of a maximum of 30%, where 10% is ideal. Never cross the limit of 30%. 

Stick To A Single Account

Opening multiple accounts is associated with different benefits. However, the primary approach should be sticking to and managing one account actively and efficiently. Opening multiple accounts to get perks or rewards offers a temporary advantage. The offers will end while adding up to your expenditures. It is better to estimate the profit-to-loss ratio in such a case. The ‘credit age’ is the factor that helps in the longer run, building the bank’s trust in the cardholder. Additionally, managing multiple credit cards requires planning and mindful usage, which should be opted for if actually needed. Avoid giving in to lucrative offers and rewards. 

Avoid Relying On Advertisements

The biggest cons of special offers, personalized offers, and advertisements is their abrupt end. The scheme for which you took the credit card might become non-functional after some time. You will be left with actual and new expenditures which may not be under your present income circumstances. Avoid falling into such traps. Otherwise, perform good research before taking up or believing the offer. 

Employee Limits

The business credit cards are also offered to employees. Setting an individual spending limit helps in the long run. Couple it with proper monitoring of the expenses to remain informed about the actions. 

Advantages and Disadvantages of Business Credit Cards

Firstly, enlisting the advantages of business credit cards, which are: 

  • Separate business and personal expenses easing the accountability 
  • Organized cash flow
  • Extended interest-free periods 
  • Unique and multiple perks suiting your business requirements 
  • Track business spending
  • Easy and quick access
  • Higher credit limits
  • Higher signup bonus and caps on spending

Going on to disadvantages of business credit cards, which are: 

  • High risk of employee abuse 
  • Potential for overspending 
  • Higher interest rates than personal cards 
  • Personal credit impacted 
  • Possessing a business credit card devoids the applicant from protection from the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act)

How do Business Credit Cards Function?

The working of both types of credit cards is the same. The cardholder will begin with using the credit card to fund your expenditure. The bank will send you the bill at each billing cycle. The received bill or statement will inform the credit card holder of the minimum amount required to pay and the total remaining balance. 

The bank will incur charges if you pay any amount less than the total bill, which includes the minimum bill. However, in case of full payment, there will be no levied interest. The interest is always levied on the remaining balance. Remember that interest rates vary among banks and credit cards. If you aim to get the lowest interest rate, work on your credit score. Use the Cibil score app to perform the Cibil score check for free. 

Frequently Asked Questions

Q1. Do business credit cards come with limits?

Ans. Business credit cards come with higher limits. Several business credit cards exist that lack any sort of limit for the holder. 

Q2. How is the business credit card limit calculated?

Ans. The factors determining business credit card limits include personal credit score, credit utilization ratio, income, and credit history, among similar other factors. 

Q3. Who can get a business credit card?

Ans. The people or businesses identifying as sole proprietors, corporations, freelancers, limited liability companies, and small and large business owners qualify for business credit cards. 

Q4. Is it necessary to have an Employer Identification Number to get a business credit card? 

Ans. The Employer Identification Number or EIN may serve as a benefit on application for a higher-end business card, but mandatory presence is not required. 

Q5. Who will pay the debt of unregistered business owners if they use business credit cards?

Ans. The unregistered or unincorporated business owners along with independent ones, are personally liable to fulfil the debt on their business cards. 

By Almas Sajid

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