7 Business Credit Card Mistakes to Avoid

Oct 5, 2012

A dedicated credit card can be a useful tool for your small business, as long as you use it wisely, according to Odysseas Papadimitriou, who covered the topic in a recent Entrepreneur.com article.

“There are many ways to increase your company’s survival odds, but one of the easiest is to control your use of credit-card debt,” he wrote. “Too often, entrepreneurs don’t make the best use of their accounts and end up hurting their businesses.”

Papadimitriou shared these seven common credit-card slipups to avoid.

1. Ignoring your personal credit standing. “Credit-card issuers pull personal credit reports when making business-card approval decisions because to them, a small business is its owner,” he wrote. “So, it’s crucial to try to maximize your personal credit score before applying for a business card.”

2. Leveraging credit too early. “If you rack up a huge balance from the get-go, you will likely waste money on interest payments and won’t be able to reinvest in your company as freely as you might otherwise,” Papadimitriou wrote.

3. Being wed to only a small-business card. “Credit-card issuers are banned from increasing interest rates on personal-card balances in the absence of 60 days’ payment delinquency, but this rule doesn’t apply to business cards,” he wrote. “So, you could face unexpected higher interest charges if you carry a balance on a business card, potentially disrupting your cash flow and strategic plans.”

4. Overlooking rewards. “Small-business credit cards have long offered unparalleled rewards on business-related expenses, and now, credit-card companies also are offering enticing initial reward bonuses on both business and personal cards to people with excellent credit ratings,” Papadimitriou wrote. “You can garner hundreds of dollars in free cash or points, which can be used to score a free flight to visit an important client or help pay for a marketing campaign.”

5. Paying interest. “You can avoid credit-card interest payments by taking advantage of introductory zero-percent rates on both purchases and balance transfers,” he wrote. “For example, the Citi Diamond Preferred Card offers zero percent on new purchases for 18 months, while the Slate Card from Chase offers zero percent on balance transfers for 15 months and doesn’t charge a balance transfer fee.”

6. Not segmenting transactions. “The rewards and low interest rates available today obviously provide value, but you won’t be able to take advantage of both using a single credit card,” Papadimitriou wrote. “That’s why you should follow the ‘island approach’ and segment your transaction types on different credit cards. For example, you can use a business-rewards credit card for everyday expenses and a zero-interest personal card for funding.”

7. Failing to safeguard against fraud. “Avoid leaving important financial documents where employees can see them; it’s possible they could apply for financial accounts under your name or your company’s name,” he wrote. “If you regularly deal with clients or vendors over the phone or online, always be careful when exchanging financial information. And keep an eye out for credit-card transactions for unusual amounts, which could be a sign of unauthorized account access.”

To read the complete Entrepreneur.com article, click here.