6 Signs Your Small Business Needs to Upgrade to a Business Credit Card

Developing a solid business plan is your first step toward launching a successful startup.

When you first launched your small business, you might have been able to get away with putting your business expenses on a personal credit card. But as your business grows, your needs will change—and you may need to upgrade to a business credit card that better meets your needs. These credit cards offer some advantages that will appeal to owners of growing businesses.

But opening a business credit card isn’t always necessary, so how do you know if you need one? Here are six signs your small business needs to upgrade to a business credit card. 

1. You’re Hiring

If you’re bringing on new employees who will be authorized to make business purchases, you’re going to need a business credit card. For one thing, you don’t want to share your personal credit card around the workplace. Plus, many credit cards offer unlimited employee cards on a single business account for free. In some cases, you can even add custom spending limits for each employee. All employee activity will show up on one monthly statement for your convenience.

2. Your Rewards Aren’t Valuable Enough

Business credit cards often offer rewards that are tailored for business, and they help you earn rewards on common business expenses like office supplies, phone and internet services, gas, and dining. If your personal credit card’s rewards don’t align with your business spending, you should consider upgrading, since you might be missing out on valuable rewards.

3. You’re Pushing the Limit

If you’re maxing out your personal credit card every month to keep your business running, it’s probably time to apply for a business card. Remember, using too much of your credit card balance is bad for your credit, and an ideal credit utilization rate is around 30%. Business credit cards often come with higher spending limits that will give you some extra breathing room.

4. You’re Incorporating

Incorporating your business—for instance, changing your business into an LLC, S corporation, or C corporation—is often a wise financial decision, as it protects your personal assets and finances from business debts and losses.

If you’re incorporating your business, it’s an opportune time to get a business credit card and completely separate your personal and business finances.

5. You Need to Build Business Credit

Just like individuals, businesses can have credit reports and scores. If you ever need to secure business financing, lenders and creditors will use your business credit score to determine your eligibility for a loan or additional credit. If that seems like something you’ll need in the future, you can start building your business credit now by opening a business credit card.

6. You Need Better Reporting

If you’re having trouble keeping track of your business spending, business credit cards can help. They often offer highly detailed credit card statements, reports, and spending summaries so you can track where your money’s going. Some credit cards also offer expense management features, which allow you and your employees to submit receipts and notes along with charges. Some cards will even integrate data with your bookkeeping or accounting system.

There are many possible advantages to a business credit card, but before you apply for one, check your credit score. That way you’ll have the best possible chance of getting approved. You can check your credit report for free at Credit.com.

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How Does a Business Credit Card Affect My Credit?

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Business owners use business credit cards for many reasons. For starters, using a business credit card allows people to separate their personal and work expenses, which can make it easier to organize finances and manage bookkeeping. Business credit cards also have some nice perks that consumer credit cards may not offer, making them handy tools for frugal and strategic business owners. (Here’s an expert guide to choosing a business credit card that works for you.)

But business credit cards aren’t always totally separate from your personal credit. That card’s impact on your consumer credit rating depends on the card issuer and the state of your business’ credit standing.

Say you’re just starting a new business, so it doesn’t have any credit history for a creditor to evaluate. When you apply for a business credit card, the issuer will likely request your consumer credit report to determine whether or not to approve you. Even then, the card activity won’t necessarily show up on your personal credit report, unless you default on the credit card payments. Payment history is a crucial component of credit scoring.

“Eventually, they will get away from your personal credit,” said Garrett Sutton, author of “Start Your Own Corporation” and “Finance Your Own Business.” So you may have to start out getting a business credit card based on your personal credit history, but using it well will help you establish a strong business credit history for future creditors to review when applying for business loans or other credit.

Again, it depends on what card you have. “Some of the business credit cards are going to want you to co-sign personally,” and some will not, Sutton said.

Sutton said at least one major issuer will report all business credit card activity to your personal credit report (though it’s listed as a business account), while others won’t report activity on consumer credit reports unless there’s a default.

“If reported, the accounts would affect scores in the same way as any other revolving account,” Rod Griffin, Experian’s director of public education, said in an email.

Because you could be personally responsible for the card activity, it’s a good idea to closely monitor purchases any employees make with a company card. On top of that, fraud protections on business credit cards differ from those on consumer cards, which often have zero fraud liability policies. Just like you would with a personal credit card, it’s crucial to manage business credit carefully, so you can keep your credit scores in good shape. You can see how your credit card use affects your personal credit scores by reviewing your free credit report summary from Credit.com, updated every 30 days.

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