A small business owner can benefit from using a credit card since such cards provide access to credit that many companies often direly need. This is because at their stage of growth, the companies may not be in a position to easily access a bank loan. So as to fully benefit from the advantages that credit cards provide, it is important to watch out for certain credit card mistakes that can hurt your company.
Not taking your personal credit rating into account
Credit card companies use the small business owner’s personal credit rating when approving a business card for the business. It is thus very important for you as the owner to have and maintain a good credit rating if you want your business to be issued with a credit card and to hope to continue enjoying high ratings. Experian does provide free credit information once a year to customers. This is a great way to check your credit score and to find out if you will be eligible for the best rates.
Using a credit card to finance a company in its infancy
It is possible to rely on a credit card for a company’s financing needs too early in the company’s life. What usually happens is that a business accrues a huge balance very early on, and then spends a good portion of what it earns to repay the interest on this balance. As a result, not enough money is available to reinvest in the company and it ends up suffering.
Paying too much interest
Due to a lack of information, many business owners are not aware that there are credit cards that charge little or no interest for a certain period. This is the case for certain cards which offer an introductory low or zero-percent rate both for balance transfers and for purchases. This introductory rate could be valid for a year or more. It is important to look for such cards, as you will be able to make significant savings on purchases and other things for your company. Find out which banks provide the best credit card rates using our bank reviews chart.
Not researching the best credit card deals
Different credit cards, both personal and business, have different features, be they in terms of interest rates, rewards, or other. For example, some cards give rewards to those cardholders that have very good credit ratings. Such rewards could be in the form of free cash which can be used for business-related purchases or expenses. It is important to shop around to see which credit cards offer the best deals and would be most suited for your business at the moment.
Ignoring the fine print
While researching for the best credit card deals, it is extremely important to read the fine print. A card may indeed come with some great features, but reading the fine print would reveal some penalties that cancel out its benefits. For example, a card may have a low introductory interest rate, but this rate then skyrockets in the event of a late-payment. In cases like those, it might be better to go with a different credit card.
Not maintaining a balanced credit-to-debt ratio
For the sake of your business, it is extremely important to maintain a high credit rating. One sure way of jeopardizing this rating is to have a credit-to-debt ratio that is not balanced. This ratio indicates your level of spending versus your card’s credit limit. Spending too much or maxing out your credit cards on a regular basis is one of the best ways of hurting your credit rating, since lenders and creditors view this as an early sign of financial trouble.
Credit Card Processing Mistakes
Another area that hurts business owners is when they start accepting customer credit cards, and they pay high rates to do so. Using the right credit card processing system will make a drastic difference in your bottom line.
As a business owner, it is in your best interest to apply for credit cards which can be used as a source of much-needed credit. However, in using them, it is also important to avoid the credit card mistakes that can hurt your company.