January 08, 2019

8 Mistakes to Avoid When Applying for a Business Credit Card

The good news is, if you don’t already have a business credit card, you have a large selection of options with various benefits from which to choose. Also — according to the Federal Reserve’s Small Business Credit Survey, about 76 percent of businesses that apply for outside funds receive at least some financing. To increase your chances of being approved for a business credit card, here are eight common mistakes to avoid when applying:

Are You Making These Business Credit Card Application Mistakes?

1. Failing to Consider Rewards

One of the primary benefits of paying with a credit card rather than cash is that many cards allow you to earn rewards on your purchases. Since business expenses can be significant, those rewards can add up over time. As you’re evaluating your options, look for cards that offer relevant rewards to your business — whether that means cash back, airline miles, or other perks.

2. Not Looking for a Low APR

If you’re using your card to make large purchases that you plan to pay for over the course of several months, the interest you’re charged matters. A high annual percentage rate (APR) can significantly increase your costs as you work to pay off your credit card balance. Make sure you consider the costs of the card in addition to its benefits, since a lower APR can save your business a lot of money.

3. Avoiding Cards with Annual Fees

It’s common for business owners to shy away from cards with fees to keep expenses low. However, these cards also tend to offer the best rewards. Before dismissing these options, try and quantify the benefits you’ll earn over the course of the year. It’s quite possible that the cash-back or other rewards you earn will easily make up for the annual fee.

4. Applying for Cards That Affect Your Personal Credit

If you’ve worked hard to maintain a high personal credit score, it’s usually a good idea to choose a card that only reports to your business’s credit profile. Otherwise, the additional balance you carry each month on your business card can negatively impact your credit score, even if you pay your bills on time. In addition, making the effort to build your business credit can help you get approved for other types of business financing in the future.

5. Seeking a Credit Limit Beyond Your Means

It may seem sensible to ask for the highest credit limit available when applying for a credit card, but a higher limit may also tempt you to spend beyond your means. If you don’t have the discipline to stay within your budget, keep your credit limit low. That way, you don’t have to worry about overspending and going into unnecessary debt — or ruining your credit score.

6. Applying for Too Many Cards

Each time you apply for a new credit card it can trigger a hard inquiry, which impacts your credit score. While one or two hard inquiries won’t significantly affect your credit, applying for several cards at once can be problematic. Aside from lowering your credit score, applying for too many new credit card accounts can signal that your business is in financial trouble.

7. Not Reading the Fine Print

It’s easy to ignore the packets of information that come with opening a new credit card, but doing so can be a big mistake. Make sure you understand the credit card issuer's ability to change your APR, the consequences for late payments and any other conditions or penalties that may have an impact on your business before opening a new account.

8. Closing Accounts to Open New Ones

Since one of the factors that goes into calculating your credit score is the average age of your accounts, it’s usually not a good idea to open and close accounts frequently. Instead, you should only close accounts that are costing you money and keep the account with the longest history active. This way, you won’t risk hurting your business’s credit score.

Conclusion: Do Your Research Prior to Applying for a Business Credit Card

Credit can help or hurt your business depending on how you use it. Avoiding these common mistakes when applying for a business credit card can set your business up for success and even help you earn money as you pay routine expenses. Have any tips for applying and accepting a business credit card offer? Share your tips with us in the comment section below!