Getting a credit card for your company can be a great way to manage business expenses, improve cash flow and build business credit while earning free rewards and points on payments and purchases you make for your business. But when you choose the wrong type of card and don’t have a spending plan, it can become a liability for your business. Getting a new business credit card can cause more harm than good to your business if you are not using it strategically.
However, you can avoid building debt and earn more rewards by avoiding the following mistakes you make with your business credit card.
Choosing the Wrong Credit Card
Bear in your mind that not all credit cards come with the same features and offers. Personal and business credit cards are two different products and carry different benefits, features, and legal protections. Similarly, they can have a different impact on your credit history and overall financial health. This is the reason, you should choose the right type of card for your business.
For instance, if you want to build business credit so you can secure loans from other financial institutes in days to come, using a personal credit card would not help you in this matter. So, choose the right type of card with the right features and benefits that can support your business’s financial goals. For example, if you need to consolidate your credit card debt or other loans, you should apply for a balance transfer credit card that comes with a long 0% introductory APR.
Maxing Out Your Card
Every credit card comes with a set spending limit and it serves as a green signal for you to use your card for that specific amount every month. Going beyond the available credit limit can have a negative impact on your credit score. Using 30% of the available credit limit is an ideal utilization rate. When you exceed this utilization rate, it can damage your business credit even if you pay in full every month. So, try to use 30% of the available credit limit to use your card wisely.
Making Minimum Monthly Payments
Making minimum or partial monthly payments is another worst mistake you make with your business credit card. When you do so, two things happen: 1) you increase the interest you pay each month, and 2) you add to the amount of time it will take to pay the balance in full. That’s why try hard to pay your credit card balance in full to avoid increasing interest and building a wall of credit card debt.
Missing Payments or Making Late Payments
A number of consequences come with missing or late payments including, late fees charges, increased interest rate and a significant reduce in credit score. Missing out on payments or making late payments are one of the business credit card mistakes you should avoid. To avoid this, you can set up automatic payments or can set reminders to stay on top of monthly payments. Make sure to pay your credit card balance in full every month to build good business credit and avoid other negative impacts on your business finances.
Not Reviewing Your Monthly Statements
The beauty of credit cards is that all the transactions conducted are recorded automatically with all essential details and information. This eliminates the need for manual record-keeping. Almost all credit card providers generate and send their users monthly statements. You should review your business credit card statement each month to check for fraudulent or wrong payments. When you don’t review your monthly statement, it can add up quickly to business costs if there are some unauthorized or wrong payments. Not only this, it also makes you aware of your spending habits and avoids unnecessary business expenses. If you are not receiving from your card provider, contact the customer support department and ask them to send you via email or print.
Being a responsible user of a business credit card opens up several financing opportunities for you. But using one irresponsibly can build a mountain of credit card debt instead of building good credit. By avoiding above mentioned business credit card mistakes you can protect your profit margins and earn free rewards while managing daily business expenses conveniently and improving your business credit score.