So which do you want first, the good news or the bad? Let’s just go ahead and get the bad out of the way. Unfortunately, business credit cards were not included within the scope of the new credit card law (the CARD Act) and as such do not enjoy many of the protections it provides, perhaps most notably that which prevents an issuer from changing the interest rate on your existing balance for any reason they want.
What’s more, if you have a so-called business credit card, the odds are that you’re individually liable for its use and that information about such use is being sent to your personal credit reports, according to a study by Card Hub.
Not only are you therefore at risk of an unexpected cost-of debt increase whenever you carry a balance on a business credit card,â but any consequences arising from this debt also extend into your personal life. Ok, there, we ripped the Band-Aid off.
So what’s the good news?
The good news is there are ways to limit your personal risk while improving the performance of your business. So let’s get into them.
Option 1: You can simply use a Bank of America business credit card. While this might sound odd to you given the aforementioned bad news, a few credit card companies have voluntarily applied certain aspects of the CARD Act to their business credit cards. Bank of America is currently the only one to apply every major CARD Act protection to its line of business-oriented cards, which means even if you carry a balance on a BofA-issued business credit card, you’ll have debt stability. You will unfortunately still be personally liable for use of this card and usage information will still be relayed to your major credit reports, but according to Card Hub’s study, this is likely the case no matter which issuer you use.
Option 2: Why not simply use a 0% APR consumer credit card for any business purchases that will lead to an end-of-month balance and your business credit card of choice for those that will be paid for in full? There’s no rule against using personal credit cards for business purposes, and this strategy will give you both protection under the CARD Act and the unique business utilities that business credit cards provide, including the ability to manage and track business purchases as well as give cards with customizable limits to employees and earn rewards on their spending.
Final Thoughts
In truth, so-called business credit cards should be included within the scope of the CARD Act. This law pertains to consumer credit cards, and as Card Hub’s study obviously illustrates, business credit cardsâ are consumer credit cards at heart. The bottom line is that branding seems to be the main reason they aren’t. This in itself is another piece of good news because such an oversight will inevitably be remedied and every small business credit card will enjoy the protections that have increased transparency throughout the consumer credit card market. Until that time comes, simply employ one of the strategies laid out above, and both you and your business will benefit.
(By Odysseas Papadimitriou, CEO of Card Hub. Card Hub is a leading online marketplace for credit card deals and gift cards.)
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