Credit Cards

You are probably familiar with credit cards, which come with pre-set spending limits. You must pay at least part of your balance each billing cycle, with the remaining, unpaid balance earning interest. While you can pay the full balance each month to avoid interest charges, you’re only required to pay your minimum balance each billing cycle. Late or missed payments can cost you extra fees, reduce your credit line, increase your interest rates and damage your credit history and score.

Charge Cards

Charge cards work like credit cards, allowing you to make purchases and then pay for the purchase later. Unlike credit cards, charge card require you to pay your full balance each billing cycle. This means you won’t pay interest charges. The charge card company makes its money from your annual fee (usually higher than with a credit card), late fees and from the fees paid by merchants to accept the card. Late fees and penalties are often higher than those charged by credit cards. Like credit cards, some charge cards offer rewards points, based on your spending.

Compare Credit Card Interest Rates and Spending Limits

Credit cards offer a specific and limited amount of credit, usually based on your credit history, score, amount of current debt and annual income. Charge cards have no set limit, but card issuers carefully watch your spending and might cancel your card if they don’t believe you can make your payments. But it is important to note, if you have a charge card that you pay off each month then the interest rate doesn’t matter, does it?

Impact on your Credit

Each time you use a credit card, the balance is added to the total amount of credit you’re currently using, which appears on your credit report. Your credit utilization affects your credit score. For example, if you have two cards that provide you with $10,000 worth of credit and you have used $2,000 worth of credit, your debt-to-available-credit is 20 percent. If you make another $2,000 worth of charges, you have used 40 percent of your available credit. The higher your credit utilization percentage, the lower your credit score. If you review your credit report, you might see “Balances too high in relation to available credit,” as a negative factor affecting your score. With charge cards, the amount you charge doesn’t go onto your credit report and doesn’t affect your score.

With either type of card, if you make your payments on time, you can build and improve your credit. If you are late with payments, miss payments or default on a card, you damage your credit. Of course, if you plan to carry a balance then you need to compare credit card interest rates because rates will really matter.

Summary

Charge cards can be a helpful tool for building credit and obtaining credit lines with higher limits. These cards come with higher annual fees, and if you have trouble making your payments, they charge much stiffer penalties than traditional credit cards. But with any card credit rewards programs can earn you extra money, so be sure to compare rewards programs in addition to interest rate.

Types of Business Credit Card Rewards

A business credit card can help you build points toward travel expenses such as free airline tickets or hotel rooms. You don’t have to wait until you’ve earned enough points for a full ticket to start cashing in your rewards – some airline cards let you use some of your points to upgrade seats from coach to first class, check bags for free or waive a ticket change fee.

If you regularly buy office supplies or equipment, look for business credit card rewards that offer discounts on those expenses. Some business credit cards offer cash back on purchases. In addition, you might be able to extend warranties on items you purchase, add buyer protection on items that might break or add price protection.Price protection guarantees you the lowest advertised price on an item for a specific period, even after you’ve purchased something. If you buy a printer for $300 and see it advertised for $250 the next day, your credit card company will reduce your purchase charge.

Chase Bank’s Ink card offers a tiered reward program, offering different amounts of points for purchases on office supplies, equipment, Internet and cable fees, gas and dining and miscellaneous spending. For example, you can earn a 5 percent cash-back bonus on qualifying purchases, up to a total of $25,000 of your spending amount.

Using Employee Cards

Depending on the size of your business and your credit history, you can obtain credit cards for your employees, which they can use while traveling or making business-related purchases. For example, if you have several departments that need to make purchases, you can assign a card to each department or function (marketing, human resources, IT, production).

If you have sales people, giving them credit cards allows them to book their flights and rooms, take a taxi to the hotel, pay for meals, make phone calls and charge any other expenses they have while travelling on your behalf. Not only does this earn you points on all of your staff spending, it can eliminate the need for an expense report. It also means your employees don’t have to spend their own cash or use their own credit while traveling on behalf of the company, submit an expense reimbursement request and wait for to collect their money. This can be a benefit of business credit card rewards.

The problem with issuing employee credit cards includes the potential for employee fraud. You will need to take specific steps to set up protocols regarding how and when employees can use their cards and monitor their usage.

Business Credit Card Offers: How They Work

Many business credit cards allow you add one or more authorized users to your account once it’s established. This is often as simple as filling out a short form with the employee’s name, birth date and social security number and the signatures of your authorized representative and the employee. Employees can then use the card for business, but not personal charges. If a business card issuer sees that your cards are being used for personal shopping, the card company might restrict or cancel your card.

Helpful Tracking

When you have multiple employees using corporate cards, your card issuer provides you with reports that show your spending by type of purchase, such as office supplies, travel and dining. In addition to keeping track of spending categories, you can track the spending of all of your employees as a group, and/or individually. Business credit card offers can make it easy to track your spending.

Streamline your Paperwork

One of the benefits of employee credit cards is that it reduces the amount of paperwork both you and your staff members need to create when making purchases. Without employee cards, staff members might have to submit purchase orders and wait to get them approved. Your office must then review the purchase orders and ask employees one or more questions before the finance department makes the purchase. When employees use their own credit cards for company purchases, such as when traveling on business, they must submit post-purchase reimburse requests. This can cost the employee interest charges if you don’t reimburse them on time. Allowing employees to make purchases with a company card eliminates these steps.

Employee credit cards won’t eliminate all paperwork, however. It’s important to put in place some policies and procedures to prevent unauthorized charges and avoid running over your credit limit.

Controlling Card Use

To avoid problems with employee credit cards, work with your credit card issuer and your finance department to set limits on how the cards can be used. Some credit card issuers let you set up individual employee profiles that limit the amounts on purchases an employee can make. Some let you set a specific credit limit for each employee. Your company should have a written policy for how and when employees can use cards. Include a list of acceptable charges, as well as examples of charges you don’t want employees making. Make it clear no one can make any personal charges.

Set up virtual card numbers for your employees so that the credit card number they use to make online purchases differs from the main account number on your physical card. This will help decrease the potential for hackers stealing your card number and running up charges.

When employees submit expense reports, have them provide receipts, not credit card statements, to reduce fraud. For example, a credit card statement only shows the total of a hotel expenditure. A room receipt shows the employee’s individual charges, which can include mini-bar and gift store items, personal phone calls, extra room service and in-room movies.

Cards for Employees or Departments?

One way to control your cards is to issue employee cards only to the heads of different departments. This allows your HR, marketing, IT or production departments to make purchases they need. This can reduce issues of hurt feelings or mistrust if your corporate policy is to provide cards only to department heads who make purchases for their departments and not themselves.

Business Rewards Credit Card:Enjoy the Rewards

The more your employees charge on their cards, the more you can earn in rewards. Your employees can also earn and keep personal rewards. For example, when your employees travel, you might earn cash-back rewards on total company spending, while your staff members earn airfare and hotel points if they have frequent flyer or traveler accounts. Discuss with your card issuer how to handle company vs. employee rewards to get the most benefit from issuing employee cards. Consider accepting some of those business credit card offers today!

Unlike a bank loan, best business credit cards are easier to obtain, don’t require you to put up assets as collateral, allow you to keep accessing your credit after you pay off balances, can be used to make online purchases and provide business-related rewards for your company. The best business credit cards offer a variety of benefits over personal cards that include:

• Larger credit lines as your business grows

 

• Low interest rates

 

• A chance to build a credit rating for your business

 

• Easier record keeping for tax purposes

 

• Reward programs on office supplies and equipment

Mixing Personal and Business Credit

Business cards include your company name on the card and invoices come to your business address. However, when you first open a business credit card, you will most likely have to use your personal credit history to obtain the business card. Business credit cards for small businesses are tied to the owner’s personal credit. This means if you have a low credit score or bad credit history, you might not be able to obtain a business card.

If your personal credit history is good (you would have no problem getting another personal card), you shouldn’t have a problem opening a business card. However, your business card use will be tied to your personal credit. If you miss a payment, are late with one, charge more than your account limit or default on your business card, this will show up on your personal credit report, damaging your personal credit worthiness. This can be especially dangerous if you plan on allowing employees to use your business card.

If your business is big enough, you might be able to open a business credit card that doesn’t put you on the hook, personally, for business charges. Talk to the card issuer and get the terms in writing, looking for the terms “commercial liability” (which makes only your business responsible for charges) and “joint and several liability” (which makes you personally responsible for the business card charges.

Be aware that even though your business credit card might be tied to your personal credit, the terms of use on your card might restrict you to using the card for business transactions only. If the card issuer sees suspicious charges, it might contact you and terminate your account if you’re using the card to pay personal bills. If you issue credit cards to your employees, let them know your policy regarding the use of their cards.

Clean Up Your Credit History First

Check your credit report before you apply for a business credit card to make sure there are no errors on your credit history. Visit Annual Credit Report to get your free credit reports from the three major credit reporting agencies, Experian, Trans Union and Equifax. Follow the steps at their websites to challenge any incorrect information you find on the credit reports they have for you. Take a look at your credit score to determine if you need to pay down one of your cards to boost your score, which can make it easier to obtain a new card.

The Best Business Credit Cards: Be Careful of the Differences

Business credit cards do not fall under the Fair Credit Reporting Act or the Credit Card Act of 2009, which means the laws that protect you when you use a personal credit card don’t apply to your business card. For example, business credit card issuers can raise your interest rates without warning, charge much higher fees than with consumer cards and apply your payments to whichever balance they choose (usually the one with the lowest interest rate). Read our post on the difference between business and personal cards (Business Credit card perks) to learn the differences and how to avoid racking up high interest payments and fees and damaging your credit.