How to Choose the Best Credit Card for Your Small Business
by Carrie Hinkel on March 3rd, 2008
The business credit card market is inundated with new cards, tantalizing rewards, low introductory interest rates and more. However, not choosing the right type of credit card can leave your business with a debt that grows steadily with each passing month. Here are some tips on picking the right card, depending on your payment habits:
If you pay on time and in full at the end of each month: Business owners who use credit cards out of convenience, rather than a way to stretch out payment terms, will be in the best position to choose the most rewarding cards. Since interest rates aren’t a factor, go for the cards that offer the best reward perks. You’ll have your choice of getting things like cash back, airline miles, hotel stays, discounts from vendors, etc. Typically, rewards range from 1% to 5% of the amount spent. Do an online search and you’ll find that there are literally hundreds of business credit card offers to choose from.
If you carry a balance every month: Since interest rates do matter, you should focus solely on the fixed interest rate. If you have good credit, you should be able to find a business credit card that will offer you an interest rate less than 10% (some cards even go as low as 7%). However, if your credit isn’t shining, you may have to settle on an interest rate in the 15%-20% range. It’s important not to get lured by a "low introductory rate" – even though 3% to 5% sounds incredible, that low rate will only last for six months, and then you’ll be stuck with a sky-high interest rate for years. It’s best to look past the intro rate and focus on the rate that you’ll be using for the majority of the card’s life.
If you sometimes pay late: Of course, no one likes to pay a bill late, but in some cases it’s unavoidable. If you think a late payment may happen even once, then you’ll want to look for a card that offers a "no penalty on interest" feature as well as a low late fee (normal is in the $20 range).
If you want to transfer a balance: If you have an existing credit card balance that you’d like to transfer to your new card, it’s important to keep an eye out for cards with low transfer fees. There are some cards that will even offer you a 0% introductory rate on balance transfers for the first year.
The most important thing to remember in your search for the perfect business credit card is: be realistic about your payment habits. Remember, the lure of reward points and cash back comes with a higher interest rate. So unless you are 100% confident that you’ll be able to pay the balance in full every month, don’t put the bonus perks at the forefront of your decision making process.