However, if you want to choose the right business credit card
for your company, there are a few things to know beforehand. Understanding how it works and what its inherent limits are might help you use it more efficiently. Let us guide you through the apparently complex world of credit cards, their most interesting features and their many purposes. 1. A credit card is not a debit card
There are some substantial differences between a credit card and a debit card
. Put simply, a debit card pulls all the money you spend directly from your banking account. If you have no money available, you cannot make a purchase because the card is directly tied to your checking account. A credit card, instead, charges everything to your line of credit. Essentially, a credit card is a short-term loan which may accrue interest if you don’t pay quickly enough (usually the “grace period” is around one month). Many credit card dealers offer a 0% interest policy for the first few years. 2. A business credit card is also different from a personal credit card
Your business account should (must) stay separate from your personal credit as much as possible. A dedicated business card is used to manage your finances without the risk of damaging your personal credit status whenever you start accruing debt on your business card. Dedicated business credit is also a viable choice for a business owner since his or her needs are quite different from a consumer’s ones. You can, for example, set individual spending limits for separate accounts if your credit is shared with other co-owners or use tools that let you upload the receipt from a purchase without delay. A business credit card can track everything in a separate account to simplify all operations during tax audits. 3. The differences between secured and unsecured cards
Another big difference among credit cards is whether they are secured or unsecured. Secured ones are somewhat similar to prepaid cards since a cash deposit equal to the card’s limit always back any expense. However, this cash deposit never runs out as you spend it, and acts as collateral to remove the risk of nonpayment. Usually appreciated by those who lack a robust credit history, the money used to secure the card can later be retrieved if you pay off the balance.
Unsecured cards have no deposit to back them up, and the credit limit depends on your credit history, cashflow and income level. Since they’re riskier, lenders usually require collateral or a co-signer to guarantee before an unsecured card is approved. 4. Keep a close eye on your monthly interest
A common mistake with credit card interest is to think that you will accrue interest only on the unpaid amount after the due date. This is not how it works since your interest is calculated on your average daily balance during that month every time you don’t pay your balance in full. The best way to avoid paying interests is to keep spending within your means, and to keep up with the monthly minimum payment required. Late payments and spending more than your credit limits, instead, will always increase your penalties. 5. Don’t forget to check for additional fees
All credit cards charge you with additional fees and penalties
, so you must be sure to know which ones you want to avoid when choosing your card. For example, if you often travel overseas or frequently buy stock items from foreign markets, you should avoid getting a card with foreign transaction fees. Having a card with an EMV chip is also a better choice in this situation, to reduce the risk of frauds. If you need to move your balance from a credit card to another, always check if the balance transfer fee is worth the alleged lower interest of the new card. Others like late payment or over-the-limit fees can be avoided quite easily if you always pay in time without overspending.
Now that you’re properly armed with all this knowledge about credit cards, you can finally choose the one that fits your needs. Do not overextend, though! While some credit once in a while can save you from a bad spot, a debt you cannot repay is something you don’t want to face.