Business Credit Cards – A Key For Success
April 8th, 2008
By The XBanker
One of the most common mistakes that entrepreneurs make is they use their personal credit cards to fund their business. This has a disastrous impact on their personal credit and their financial future – not to mention the problem of co-mingling funds! I highly recommend that you put a business credit card on your short list of start-up needs.
The single most important feature of a good business credit card is that it doesn’t report to the personal credit bureaus (see my post on Ghost Guarantees). This is critical, because it helps you keep your personal credit strong (I’ll talk more about key personal credit ratios in my next post). It also helps you manage your cash flow and track expenses. Business credit cards, just like all bank financing, are going to lean on your personal credit score for approval. You need to have a decent credit score (it doesn’t have to be great) in order to be approved. You also need to make sure that your business is set-up appropriately so that you don’t appear to be a high-risk operation.
Obviously, it is our business to help you qualify and screen out the best available financing for your business. In the event, that you are a “go-it-alone” type, before you apply for any business credit card you need to do some homework. Applying, just to be denied is a fool’s errand. The first thing you need to find out is whether the credit card reports on your personal credit or not. If it reports, you need to move on. If not, you should find out what the bank’s lending requirements are: years in business, industry, personal credit scores, key ratios, etc. You might need to talk to a couple of people, but let me assure you that you can get answers. Don’t get hung up on the initial amount of credit that you are offered. You might need to start small and build up from there. Just make sure that you don’t put it off, make this a priority – you won’t regret it.
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And I say Amen to that mr X , Amen to that….Right on the spot article , good job..
Tomas
Great post. When I started my business 4 years ago, I got a few credit cards from Wells Fargo. I think they totaled about 30K. I now have close to 100K with them. Every 6 months or so I ask them for a rate reduction or an increase in my line. It works almost all the time.
Jake – that’s the way it works. I’ve seen entrepreneurs get really hung up on the “small” limit they initially receive, but if you are responsible you’ll see those limits skyrocket. This is one of the reasons why I advocate multiple lines with different banks – then you’ll really see your available credit take off!
If I co-own an S-corp with my wife (50 % shareholder) and her credit is poor should I still put her on the business credit card application?
[...] Rewards are great (personally, I’m a total points addict); however, the most important part of a business credit card is the ghost guarantee that they provide you as a business owner – which can serve to protect your personal credit from being dragged down by your business activities. I gave my two cents on the subject in a previous post regarding the importance of business credit cards. [...]
Rudy,
If you are building your businesses credit, then it really doesn’t matter whether you add your wife to the business credit card application since it is reported in the name of the business not her personal name or credit (if you chose the right card).
However, I would recommend you work on getting her credit back on track. You’ll want to review her credit reports and see where improvements can be made. Don’t wait. If something happens to you, you’ll want her to be able to continue the business on the basis of her good credit, and the businesses.
Gerri