Credit Cards and Your Small Business
Whether your business has been up and running for years or you’re just thinking about setting up a shop of your own, figuring out what credit cards to have – and using them wisely – are crucial for your long-term success.
This is a good time to be shopping for business credit cards. Credit card issuers are devoting a lot of attention to small business owners these days and are coming out with very tempting offerings – especially for folks with very good to excellent credit. How would you like an introductory rate of 0% for a year on new purchases and balance transfers? If you have an excellent credit score, it could be yours!
But Don’t Apply Just Yet
In brief, card issuers look at both your personal credit picture as well as your business’ history before they decide whether to give you a business credit card. If they’re not thrilled with what they see, they may not give you a card at all, or they may give you one that has less generous terms than the ones you saw advertised.
How Do Lenders See You?
Using your personal plastic for your business can be problematic for a bunch of reasons. Of course, there’s the danger of becoming over-extended. But even if things are humming along quite nicely, if you’re charging a lot compared to your available credit, your credit score will take a hit. That in turn will make it harder for you to get a home mortgage, car loan… or a business credit card. The sooner you can separate your business from your personal expenses, the better.
Pay down as much of the credit card debt? as you can and don’t apply for any other credit, at least not until you finish reading this article (hehe), so you don’t have inquiries showing up that may lower your score. Then check your credit reports and credit score. This is not the time to have an error hold you back! Correct any mistakes that you find ASAP.
Card issuers require your personal guarantee before they will approve a business card. The better you look on paper, the more generous their terms are.
How Do Lenders See Your Business?
If you haven’t gotten very far in establishing your business, you may think that lenders can’t see anything at all about your enterprise. That may or may not be the case! Businesses have credit reports just like people do. Information about them is gathered by mega-agencies from multiple sources.
Then lenders develop and use their own business credit scoring systems to help them assess risk. To decide how much credit you’ll receive, a lender will weigh your firm’s credit history and track record, the type of business you are in, and your personal credit score. So the care and feeding of your business’s credit picture should be a top priority. Otherwise, you’ll pay the price. It’s quite similar to what goes on with personal credit scoring.
Agencies such as Dun & Bradstreet, InfoUSA, and Experian collect all sorts of information to build a business’s credit profile. The level of detail they collect and the number of businesses they collect it on is quite staggering. For example, on the 100 million+ businesses Dun & Bradstreet tracks around the world, it makes “over 1.5M updates to our database on a daily basis. It could be major transactions like paying vendors or making lease or mortgage payments, but it could also be seemingly smaller transactions like equipment leasing, advertising, shipping packages or underwriting insurance.”
InfoUSA makes over 17 million phone calls to update “all 15.5 million business records every year using telephone directories, annual reports, press releases, SEC records, Chamber of Commerce directories, and thousands of other sources.“
Experian’s 18 million business credit reports “combine information from sources including actual trade payment experiences submitted by payees, public record information, collections information, company background and comparative data placing a company’s payment performance in context with its industries … state filing offices, public records, credit card companies, … Standard & Poors and marketing databases.”
For the Business Credit Bureaus to See Your Firm in the Best Light
Now It’s Time to Go Shopping
Credit.com makes it easy to look over the current crop of small business credit cards. As you browse through them, consider how you will use your business credit card(s). Ask yourself these questions:
Last Minute Reminders: Be sure to read the fine print before you apply so you’ll know what you’re getting into and when the introductory rates will rise. Make sure that the card reports to the credit bureaus so it can further build up your business credit history – and don’t take on more debt than you can handle!
* Nancy Castleman – Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 23 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com and Credit.com.
A high credit score often equals savings on loans and credit cards.
/life of loan
/life of loan