Using a business credit card can really help you manage cash flow and even offset some of the startup costs surrounding your venture.
Still, credit cards are like short term loans. You borrow against your credit limit but you’re also expected to pay back what you spend in addition to interest.
Just like with personal credit cards, using business credit cards unwisely can cause you to get deep into debt which can affect your overall financial situation. Here are some important do’s and don’ts for using business credit cards to keep in mind.
Do: Research Fees and Terms
Whenever you get a new credit card it’s important to research the terms and fees so you know what you’re getting into. You’ll want to know what the interest rate is, how high late fees and return fees are and other fine print details like how much foreign transaction fees are.
If you receive a 0% promotional APR, you want to know when it ends so you can plan your spending and card payments accordingly.
Don’t: Use Your Credit Card For Large Emergency Expenses
A lot of people consider using credit cards in the event of an emergency. This isn’t the smartest plan. When you have a business and a financial emergency arises, it could drastically affect you and be hard to bounce back from. Instead, prioritize growing a business emergency fund to serve as your first line of defense when unexpected expenses arise.
Do: Consider Using Business Credit Cards When In-Between Payments
On the contrary, using business credit cards for smaller purchases when you’re in between payments is pretty standard. Your line of credit can serve as a cash cushion to help you cover immediate costs until you receive more payment and revenue.
Costs like payroll, tools and other materials are among some common expenses that business owners use credit cards for. Just make sure you have a plan to pay off the balance and pay yourself back in a sense when the necessary funds arrive.
Don’t: Max Out Your Business Credit Card
This should do without saying, but it’s important to keep your utilization low and manageable when you have a credit card whether it’s a business or personal card. Once you start to utilize more than 30% of your credit limit, this can ding your score.
If you’re trying to build your business credit score, it’s best to use wisely and as a tool to build some positive credit history to report.
Do: Pay Off Credit Card Bills When They’re Due
Another way to build your business credit score is to pay your credit cards off when they’re due or beforehand. Aim to have a perfect payment history and you can even set up automatic monthly payments to avoid you don’t miss it and get charged a fee.
If you can’t afford to pay off the entire balance when the bill is due, commit to at least paying the minimum balance and add on whatever extra you can.
Don’t: Pass Up Earning Credit Card Rewards When it Makes Sense
Credit card rewards are just an extra perk, but they can be pretty helpful if you don’t have to work too hard to earn them. Some business credit cards offer cashback or points whenever you make purchases. These rewards can be used to supplement your travel costs or even serve as a statement credit to lower your balance.
Just keep in mind that no type of credit card rewards system is worth overspending and getting into debt over. Only use your business credit card to spend on regular purchases that you planned for. Don’t overspend in the hopes of earning more rewards.
Summary
Using business credit cards as a tool can help you pay for important expenses, manage your cash flow, and even earn some rewards. You can also use your card to build a solid business credit score.
Prioritize the do’s from this list and avoid the don’ts so you don’t rack up debt and a ton of unnecessary fees.
