Your small business is growing, and with growth often comes the need to build credit.
Whether you just want an extra source of credit that comes with great rewards or need some working capital, applying for a business credit card may be the right choice. Here are some steps to take before you apply to make sure you get the best business credit card for you.
Make sure that a business credit card is the right fit. Business credit cards are good for making daily purchases, building credit, managing cash flow, and rewards. If you need longer-term funding, a small-business loan may be best.
Check your credit score. Whether you’re applying for a business or personal credit card, your approval and credit limit will depend heavily on your personal credit score. Most business credit card issuers report your card usage to both commercial and personal credit reporting bureaus. It’s likely that your personal score will take a hit if you default or are late on your business card payments, so use the card wisely.
You can get your personal credit reports for free once a year at AnnualCreditReport.com. Lenders set their own standards for what they consider excellent credit, but here are the general ranges for personal credit scores:
- 300-629: Bad credit
- 630-689: Fair credit
- 690-719: Good credit
- 720 and up: Excellent credit
Business credit scores are more complicated. A good business credit score will make your business appear trustworthy to lenders and could give you access to bigger, lower-interest loans, but it can take time to build up. Effective use of a business credit card can help you do just that. Like personal credit scores, business credit scores come from three different agencies, each with varying ways of scoring and reporting. For example, all three credit bureaus that report business credit scores — Dun & Bradstreet, Equifax and Experian — use a 0-100 scale, but all of them measure the scores slightly differently and two have secondary scores. Unlike your personal credit score, each business credit report costs from $36 to $100 if you want to see it. If your business is new or you’ve never used credit before, you will likely not have a business credit score. Here are the basics of how to get one.
Determine what you need the card for. Business credit cards can help you even out your cash flow, but you can get the most out of your card by using a rewards card that fits your spending habits. There are a few basic kinds of rewards business credit cards:
- If you travel often for business, consider getting a travel card. Cards that are partnered with an airline or hotel offer points toward flights or rooms, or access to VIP lounges at airports. Other travel cards that aren’t affiliated with a partner can offer transferable points toward flights or hotels, giving you more flexibility.
- If you make a number of routine purchases for your business, consider a cash-back card. Some cards offer as much as 5% cash back on office expenses like internet service and office supplies. If you anticipate needing to make a lot of purchases in the near future, consider applying for a business credit card that offers a hefty sign-up bonus. If you have employees that need to use it, see if the card offers the option to add them and add spending limits for each.
- If you think you’ll need to carry a balance on your card, consider a card with a low APR. Many cards have introductory 0% APR offers, often for up to 12 months, but you could wind up paying a much higher interest after that. If you think you’ll have to carry a balance on the card for longer than a year, it’s better to apply for a business credit card with a lower ongoing APR.
While these rewards cards are easier to get if you have good or excellent credit, there are cards with low or no rewards available for those with fair credit. If your credit isn’t good enough or is too new for a loan, these cards are a good alternative. You’ll build business and personal credit by using the card responsibly, which will give you access to better cards and loans in the future.
Choose the best business credit card for you. Once you’ve checked your credit score, determined that you need a business credit card, and have decided what you need it for, to get the best deals, shop beyond the bank where your business has a checking account or loan to apply for the best credit card for your business.