Business Credit Cards Can Be Bad For Business

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Editor’s Note: This is a guest post from Odysseas Papadimitriou of Card Hub

As the age-old saying goes, you’ve got to spend money to make money. It therefore goes to reason that to make the most money possible, you’ve got to spend wisely. For most small businesses, a key aspect of this is choosing the right credit card, both for funding purposes and everyday purchases. But how should one go about selecting a business credit card? Interestingly, according to a pair of small business credit card studies from Card Hub, this process isn’t nearly as straightforward as you might think.

These studies – which gathered information about the policies and practices of the 10 largest credit card issuers in the United States – not only revealed that American Express, Bank of America, Capital One, Chase, Citi, Discover, HSBC and U.S. Bank all hold individual consumers liable for so-called business credit card use, but also unearthed the fact that all of the major issuers who were transparent enough to participate in the studies report “business credit card” information to users’ individual credit reports. “Business credit card” therefore appears to be a misleading branding term, which belies the true consumer-oriented nature of the products it is used to describe. What’s more, the new credit card law (CARD Act) – which applies to consumer credit cards – should truly apply to so-called business credit cards as well.

So where does this leave small business owners now?

For starters, these studies reveal the innate danger of using “business credit cards” for certain types of spending. Though small business owners are held personally liable for use of such cards – both financially and in terms of their credit scores – they are not afforded the key CARD Act protection against arbitrary interest rate increases. This means that many of you must rethink your approach to business spending. In all, you have two general options:

# A two-card strategy: Use a consumer credit card for business purchases that won’t be paid for in full by the end of the month and a business credit card for all others. By doing so, you not only ensure debt stability, but also retain the ability to easily track business spending and earn rewards on customizable-limit cards you’re able to provide employees.

# Use of a Bank of America business credit card: Bank of America is currently the only major credit card issuer to have proactively applied all of the CARD Act’s protections to its business credit cards. Therefore, you can use such a card for all types of purchases and be assured that, among other things, an increased interest rate will not be applied to an existing balance unless you are at least 60 days delinquent.

Which option you choose is ultimately up to you, but keep both variety and convenience in mind when making this decision. The two-card strategy provides far more options than the Bank of America course of action, thereby giving you a better chance of finding the right 0% credit card with which to revolve debt and the best business rewards credit card for everyday expenses. On the other hand, the Bank of America option provides simplicity in that you can use a single card to make all of your transactions.It’s important that you do employ one of these strategies, however, because it’s hard enough to make it as a small business owner without being held back by your credit card. And while you might be wary of bucking the labels or simply switching credit cards at all, understand that it truly will benefit you and your bottom line.

Odysseas Papadimitriou is a former Capital One senior director and is currently the CEO of Card Hub, a leading marketplace for credit card offers, including business credit cards for new businesses.

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