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Top 5 Reasons to Get a Business Credit Card
Did you know that the largest market for business credit cards tends
to be the small business owner? Outlined below are some reasons why small
business owners love business credit cards:
You Can Extend Cash Flow
Small businesses need access to all types of capital to grow
and expand. This is particularly important for startup entrepreneurs who
frequently fail due to insufficient capital and unexpected poor cash flow.
credit cards can help ease the highs and lows of small business capital
needs. Many small business credit cards also offer an Introductory 0%
APR for 12 months or more. This can provide short-term relief for your
business if you are experiencing temporary cash flow problems. Cards with
and introductory 0% APR can also provide you with an influx of startup
cash to get your business off the ground.
You Can Pay Your Suppliers With Client Funds
Business credit cards can be used to pay suppliers and contractors,
as well as purchase items for clients before invoicing them. It's easier
to justify expenses to a client if you can present them with a itemized
expense report from your credit card issuer. But better than this, if
your client pays in a timely fashion, you can use their payment to pay
for the supplies purchased to complete their job. Thus, you never
have to dip into company funds. For example, a contractor may use a credit
card at the beginning of the month to buy building materials for a house
renovation job and then pay it off when the statement comes, after the
client has paid. Small business owners who need this benefit should look
for a credit card with high credit limits and a long Grace
You Can Get Flexible Credit Limits
Business credit cards have either preset limits, typically
to a maximum of $50,000, or no-preset limits. This second type
usually has an annual fee and must be paid off at the end of the month,
such as the Amex Gold Business Card. Credit cards with preset limits usually
don't have an annual fee. If your business spending is seasonal and prone
to spikes due to inventory purchases or traveling costs, a credit card
with no-preset limits is a better choice to cover all business costs.
However, if your business operates on a cash basis and doesn't stock goods
for sale, look for a card with a moderate credit limit and a low APR,
so you can use it to track expenses or in case of emergencies. If on the
other hand your cash flow does not allow payment in full, then a card
with a high limit that allows you to carry a balance may be better.
You Can Get Detailed Expense Reporting that Simplifies Bookkeeping
A key factor for business success is being able to monitor
and cut expenses. Business credit card issuers make this easier by providing
detailed monthly, quarterly, and yearly statements that can even be categorized
depending on types of expenses. Year end statements provided can be invaluable
for monitoring spending by category, reporting rewards, and simplifying
tax preparation. With this benefit you dont need to keep track of every
little receipt. At tax time, you can just take your year end statement
to your accountant saving time and money. Some credit card issuers automatically
categorize your purchases based on tax return categories such as Entertainment,
Postage & Shipping, and Office Supplies.
You Can Get Air Miles for Frequent Travelers or Cash Back for Frequent
If your business requires frequent travel and/or client entertaining,
you should consider a business credit card with travel rewards such as
the Amex Delta Gold. You can receive benefits such as 1 mile point for
every dollar charged and 10,000 or more free points when you sign up.
In addition you can gain automatic travel insurance and baggage protection.
Many cards also offer discounts on hotels and rental cars. Miles earned
can also be applied for additional free business travel or given to company
employees for personal use. On the other hand, if your business has hefty
monthly expenses, you may also be able earn significant cash back rewards,
typically as high as 1% to 5%. The advantage of cash back rewards is that
they do not require any effort on your part to keep track of, while the
disadvantage is that at the end of the day, you may receive less value
compared to travel or merchandise rewards.
Business credit cards also offer rewards points typically at a rate
of 1 point per dollar spent to be redeemed for such things as merchandise
or travel. Rewards card issuers also often sweeten the deal with numerous
opportunities to earn multiple points per dollar spent for targeted merchant
Realistically speaking, rewards or cash back incentives will not make
you rich, but if you do use your credit card frequently, you could get
several hundred dollars per year back in value. With the number of points
required for many domestic flights starting at 25,000, it's also easy
to see how frequent business travelers can quickly gain enough points
for free flights. Nevertheless, don't be swayed by rewards program if
all you really need is a low APR and high enough credit limit. Also be
wary of a high annual card fee which can quickly nullify rewards received.
Prospective cardholders should also be aware that although rewards can
be significant many frequent flyer programs restrict travel to certain
dates and types of seats, and that the miles can expire after a certain
period. It is usually best to use travel miles for expensive or last minute
trips and pay cash for discounted promotional flights.
How to Get the Most Out of Your Business Credit Card
Following are some useful tips and suggestions about how to use your
business credit cards to succeed.
Credit cards are just like a loan, and can accrue steep interest charges
if you don't use them wisely. So never charge more than you can afford
to pay. Owing more than you can repay can damage your credit rating. This
makes it harder to get suppliers to extend you trade credit, as well as
banks to extend you short-term loans. If you are afraid of getting into
credit card debit, get a charge
card instead (e.g., Amex Gold Business Card). This way you MUST pay
at the end of the month.
Pay your credit card bill on time, and in full when possible.
If you don't, you'll have to pay APR charges on the unpaid balance-and
this eats into your profits. For unpaid bills, APR stands for "A
Pain in your Revenues." The last thing you want is to have your business
generating money solely to pay off credit card debt. Business credit cards
are tools for success, and should not be abused.
a Business Credit Card to Manage Expenses
A Small Business Credit Card is an excellent way to manage
company expenses and maintain an audit trail. Every month you'll receive
a statement and will know exactly where your money is going so that ongoing
control or restraint can be exerting. Monthly statements often provide
purchase category breakdowns for easy analysis. For example, travel and
entertainment expenses can be separated from office supply and admin expenses
for easier monitoring. Many credit card issuers also offer statement formats
that can be accessed online and downloaded into accounting software such
as Quickbooks. In fact, many business owners prefer to monitor the use
of their business credit card online.
and Monitor Employee Expenses
Rather than being bombarded each month with a flood of invoices
and expense reports from each employee, especially those with traveling
expenses accounts, you can receive a detailed bill broken down for each
employee, type of charge and date. Future expenses can then be forecasted
with greater accuracy.
How to Improve Your Credit Rating
Although getting a business credit card is a must for most businesses,
especially a startup, what happens if your credit rating is bad? Most
credit card issuers want customers with a "good" or "excellent"
credit rating. If you have a bad credit rating, it is possible to get
a Prepaid Debit
Card or a Secured
Credit Card. Some credit card companies offer 100% approval, no credit
check, bankruptcy OK, and no one is turned down. OR you could take steps
to repair your bad credit before applying!
Your Credit Rating is Determined
The following has been extracted with permission from business
planning guide Successful
Business Planning in 30 Days:
A good credit rating is vital in determining whether you can obtain
a credit card, line of credit, mortgage, or business loan, and what
price you pay. In Canada and the U.S., factors considered in assessing
your credit score (also known as your FICO, Beacon, or Emperica score),
is your payment history? Do you pay on time and in full? (35%)
How much do you owe? (30%) How
established is your credit? (15%)
How many credit accounts or applications do you have and what is your
mix of credit cards and loans? (20%).
Length of time at the same residence, education attained, age, income,
marital status, dependants, and credit references, can also help you
obtain credit. To improve your credit rating score, make sure you have
or seek to acquire the following eight elements:
1. A positive up-to-date credit report
2. A home with a mortgage
3. An American Express card and/or Diners Club card
4. A job youve held for a year or more
5. A current or paid-off bank loan or car loan
6. A MasterCard or VISA
7. A department store credit card
8. A telephone in your name
FICO scores range from 330 to 830. The higher your score the better.
High scores from 700 to 830 demonstrate that you're a low credit risk
while scores in the middle from 500 to 699 alert creditors that they may
need additional information to assess your credit worthiness. Low scores
from 300 to 499 indicate that you're a high risk.
Steps to a Improving Your Credit Rating to Get a Business Credit Card
"Credit is a privilege, not a right," says James
Jones of the credit reference agency Experian.
A. Check your credit report and pay all outstanding debts. You
can get a free credit report at Freecreditprofile.com
Check your report for accuracy. If you have any arrears on credit accounts,
pay them in full or work out a repayment plan and request the creditor
to amend the information they provided to the credit bureaus to show that
payment has been made or is being made. Paying down current credit card
balances can go a long way toward repairing a bad credit rating.
B. Check your credit report for errors and correct.
The information contained in your credit report may not be accurate
or up-to-date. If you find mistakes, write the creditor first explaining
the problem clearly. Include any documentation you have, such as a copy
of a check or a receipt. It's a good idea to send the letter by certified
mail so you have a record of it being received. Next send a written explanation
to the credit bureau, along with copies of your documentation. Ask the
credit bureau to include a brief explanation of of the situation and update
your report. Keep in mind that the credit bureau and creditor are legally
bound to investigate a credit dispute and report back in writing within
a reasonable time frame of usually no more than 30 days. Also check your
report for financial information in other people's names, with whom you
share no financial connection with and could adversely affect your creditworthiness.
Ask the credit reference agency to remove this information from your report.
It should also be noted that if you fell into arrears in the past due
to circumstances out of your control, you may have the right to add an
explanatory statement to your report. This will be seen by all lenders
and credit card issuers in the future.
C. Contact your creditors immediately and work out a repayment plan.
Contact creditors directly as soon as you realize you will not be
able to make a payment. Discuss your options. Most creditors WANT you
to pay them back and will try to work out a payment plan that reduces
your payments to a more manageable level. Never let a bill slide 60 days
past the due date. Normally, creditors won't report accounts 30 to 40
days overdue. However, after 60 days, there's a good chance your delinquent
payments will be recorded in your credit history. Remember, working with
your creditors is the best way to keep your credit rating from going bad
or getting worse. As long as you keep in contact and show a willingness
to pay, they may not even report you. It's when you ignore them and run
away that you leave them no choice.
D. Know exactly how much you owe. In general, debt of 75% or more
of your total available personal credit does not look good. Pay off these
debts before you apply for your business credit card.
E. Limit the number of credit account you have or apply for. If
you have a lot of personal credit accounts, consider closing the ones
you aren't using but not the ones you pay off regularly. Too many accounts
may keep you from getting credit. Banks and credit card agencies look
at your total debt potential when determining whether or not to approve
you. Furthermore, do not make multiple applications for a business credit
card in a short period of time. Shopping around is okay, but too many
declined applications looks bad and can impact your credit rating. If
you are declined credit, check your report first and resolve any issues
before making further applications.
F. Consider using your home's equity to consolidate debts. You
may be able to lower your cost of credit by consolidating your debt through
a second mortgage or a home equity line of credit. Since home loans generally
have much much lower interest rates than credit cards and other types
of loans, you can save money on interest. Interest on home loans may even
be tax deductible depending on where you live. However, think carefully
before doing this. These loans require your home as collateral and if
you can't make the payments, you could lose your home. Consult your tax
G. Rebuild your credit by opening a gas or department store credit
card. If you have a bad credit rating, a gas or department store card
that is regularly used and paid off can help you start repairing your
H. Pay on time, every time. Set up a bullet-proof system to remind
yourself when your bills are due. If you can't make payments because of
a short-term emergency, talk to your creditors before you miss a payment
to see if they can help.
I. Consider using a qualified and reputable credit counselor. Avoid
credit repair clinics. Many companies promise to help people with
poor credit histories clean up their credit report for a fee. However,
these companies don't deliver and many are scams. Some even suggest bankruptcy
to "clear" your debts, and this is generally very bad advice as bankruptcy
is an absolute last resort because it is included in credit reports for
up to 10 years. Instead, contact a reputable credit counseling organization,
such as the Amerix Corporation (www.amerix.com) or the National Foundation
for Consumer Credit www.nfcc.org. Also check with the Better Business
Bureau. A true credit counselor negotiates between you and your debtors
to work out an affordable plan for all involved.
checking current requirements and terms with card providers
before you apply as they may change. When you click the "Apply
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