While having a business credit card can be helpful, you should still be cautious when using it. Here are five mistakes you might be making with your business credit card, and tips on how to make better financial decisions moving forward.
1. Using Too Much Credit
Some business owners use debit cards for their expenses, but credit cards have many advantages that debit cards don’t provide. For example, the ability to charge your card and pay down your balance monthly can quickly turn to a disadvantage if you’re not careful.
According to CNN Money, lenders will look at your credit utilization ratio and if they see anything above 30 percent, they’ll consider that as a sign that you may be a bad credit risk. Other downsides to overcharging and maxing out your card could be little to no room for unexpected expenses and higher interest fees. The bottom line here is to use your business card to build credit, not exceed it.
2. Mixing Personal and Business Credit
Mixing personal and business finances when it comes to using credit cards can be bad for many reasons. Not only can it get confusing come tax time, but it can also get you in trouble with the IRS if you haven’t specifically documented each individual personal expense that you might’ve covered with your business credit card.
Additionally, some business credit card providers report to the credit bureaus that determine your personal credit score. Many business owners don’t realize this, and end up doing damage to their personal credit.
3. Making Late Payments
If you don’t keep track of when payments are due, you can get your business in hot water very quickly. Late payments can lead to higher interest rates, a bad credit score, and late payment fees, just to name a few examples.
The good news is that most accounts have options to set up automatic billing. Gone are the days when you had to mark off a date on your calendar to remind yourself to pay the bills. The ease of automatic billing makes it convenient for you and your business to keep on top of your finances. If you do set up auto payments, make sure to review your statement each month to ensure that there aren’t any errors.
4. Opening Too Many Accounts
There’s a fine line between strategically opening new credit cards to capitalize on various awards and overloading on credit cards. Of course, having a couple different business credit cards can also be helpful because your available credit will be more expansive. That means you can avoid the 30 percent credit utilization ratio threshold more easily.
However, having too many accounts open at one time can be bad for business, especially if you’re looking at credit as free spending money that you really don’t have. In an article for Business Insider, credit expert John Ulzheimer suggested staying on top of each payment and allowing for enough time to pass between opening another account so your credit score doesn’t take a hit with each hard inquiry.
5. Not Using Rewards
One of the biggest benefits of using a business credit card is the rewards. Cashback, points, and travel perks are just some of the things you can enjoy with corporate credit. Still, these offers can expire, so it’s important to take advantage of them while they are available.
In addition, it’s crucial that you don’t overspend to receive rewards. Earning rewards should be used as an added benefit to necessary spending, not an excuse to spend more money.
Conclusion
As with every adjustment to financing your business, know your limits and what you can and can’t handle. Credit cards can act as a wonderful conduit to wise spending, but making mistakes like using too much credit and not making your payments on time can quickly make credit cards a losing investment. To get the most out of your credit card, start crunching the numbers and determine how to avoid the red flags.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
