Business Credit Card

'Yes' - is the answer that's comes out almost immediately. That is true at least for most businesses (especially small businesses). Before we delve deeper into how business credit cards are helpful, let's try and understand what a business credit card is.

Put simply, a business credit card is a credit card that is owned by a business and not an individual. To understand this better, you can simply draw an analogy between the business credit cards and business bank accounts, which are in the name of the business as well. Other than that, business credit cards work in pretty much the same fashion as the personal credit cards; with a few exceptions. These exceptions are in the form of flexibility in credit limit, low APRs and some other additional benefits that are available to business credit cards only.

Even from just that, business credit cards seem a good proposition. However, business credit cards would be attractive even without those benefits because the main benefit lies elsewhere. The big-big benefit from a business credit card is realized in terms of business expense accounting.

For most small businesses, business expense accounting is a big overhead. With business credit cards, this is handled very easily - you just have to ensure that you make all your business expenses on your business credit card and let the personal expenses be on the personal credit card i.e. segregation of business and personal expenses is all you need to do. So the bill for your business credit card will have all the business expenses on it and you wouldn't need to collate all the various bills or sort out the items from your personal credit card bill. The key here is to make sure that you use your business credit card for all your business expenses (or as much as you can).

Moreover, a lot of business credit card suppliers realize this need of small business and even organize the business credit card bills in a way that meets the accounting requirements of these businesses. So mostly, they will appropriately group the expenses on the business credit card bill so as to facilitate business expense accounting.

In fact, some of the business credit card suppliers go to an extent of providing the bills in a format that can be downloaded and exported to an accounting system i.e. you don't need to enter the data manually in your accounting system. In case the format is not suitable for your accounting system, you can hire a software professional to write a small quick program to convert it into a suitable format.

Thus just one reason - 'facilitation of business expense accounting', is enough to support the case of small business credit cards.

Labels: business, business credit card, card, credit, helpful

If you haven't had the credit limit cut on your credit card recently, count yourself lucky. Risk-averse card issuers are getting slash happy. And while many cardholders gripe that such cuts slice razor-close to their balance amounts, for an unfortunate few the cuts go far deeper: below what they currently owe.

Under different circumstances, David Chaplin-Loebell wouldn't have minded that American Express cut his unlimited credit line to just $5,000. Except that when AmEx reduced his line in October, he had an outstanding balance of $10,000. "I found out by having a business purchase declined," he says. Repeated calls to AmEx failed to yield an answer about why the cut was made. Chaplin-Loebell, who lives in Philadelphia, is now paying the balance under his regular card terms, and presumes the line will free up for new purchases once he's below the limit. "For now, they've essentially frozen the account," he says, leaving him to juggle business expenses on his personal cards. American Express did not respond to requests for comment.

Nasty as it may be, the practice of cutting credit lines below the balance is legal -- at least, for now, says Chi Chi Wu, a staff attorney for the National Consumer Law Center, a consumer advocacy group. Federal Reserve rules requiring lenders to give cardholders 45 days notice before reducing a credit line to the point that it would trigger penalties won't go into effect until July 2010. "[Until] then, there are no federal protections," says Wu.

Congress is also hoping to rein in unscrupulous credit-card practices. In February, Sen. Chris Dodd (D., Conn.), chairman of the U.S. Senate Committee on Banking, Housing and Urban Affairs, reintroduced the Credit CARD Act, which among other things, offers cardholder protections like the ability to pay under the existing terms if an account is closed and requiring issuers to lower penalty rates within six months once a cardholder gets back on track with payments. Earlier this month, the House Committee on Financial Services chairman Barney Frank, announced a series of four hearings that will include discussions about credit card reform.

SmartMoney.com contacted both committees to see if they were aware of issuers' practice of cutting credit lines below balances, and if they planned to address it in upcoming hearings. Neither responded to requests for comment.

The motivation among issuers to make such deep cuts that they plunge below a cardholder's balance amount isn't very clear. Usually, issuers cut credit lines to reduce outstanding liabilities -- they sometimes may even chase the balance on riskier accounts with further limit cuts as cardholders pay down debts, explains Bill Carcache, an analyst with investment bank Fox-Pitt Kelton. But cutting below the balance doesn't reduce an issuer's liability: The cardholder still owes the outstanding debt.

One possibility is that this is yet another attempt by card issuers to get consumers to close their accounts (while bringing in a little fee income in the short term), says Dennis Moroney, research director and senior analyst for consulting firm Tower Group. "I can't rationalize in my mind what other motivation there would be," he says.

Paul Pensabene of Saratoga Springs, N.Y., received a statement from HSBC on Dec. 8 that said he had a $359.99 balance and remaining available credit of $8,640. But when he went online to pay the bill several days later, his online account showed that same balance put him over his newly-reduced credit line of $300. And that didn't include the $35 over-limit fee. Pensabene grappled with customer service until they agreed to remove the fee, and then paid the balance in full. "All I could think was, 'Good lord, what if this is happening to someone that couldn't pay their balance off in one shot?" he says. "They'd end up in default with these fees piling up."

HSBC declined to comment on individual cardholder accounts. Spokeswoman Cindy Savio says the issuer has tightened its credit standards based on the economy. "As we have previously stated, in an effort to reduce credit risk and refine strategies for our card business, we have tightened credit standards, reduced or canceled higher risk credit lines, and closed a number of inactive accounts," she says.

While the fees, frozen accounts and default interest rates resulting from credit-line cuts can sting your finances, they can do some serious long-term damage to your credit score. Your credit utilization ratio -- the total amount of debt you owe in relation to the amount of credit available to you -- accounts for roughly 30% of your score. A credit line cut has the potential to decrease your score by 50 points or more if you don't have much other available credit, says Craig Watts, spokesman for FICO, the company that calculates and issues the credit score that most lenders use.

Even cuts that are close to the balance have the potential to devastate if they're not caught quickly. Luckily for Carol Gressett of Decatur, Miss., she noticed the reduction in her Discover-branded Sam's Club card limit just days after it happened. The limit was cut to within $100 of her $3,000 balance. The official letter notifying her of the reduction arrived three weeks later. "We could easily have gone over if I hadn't been paying attention," she says.

(A Discover spokesperson says GE Money issues the cards, and so is responsible for managing credit lines. GE Money did not respond to requests for comment.)

By Kelli B. Grant

Labels: business credit, business credit card, card, cards, credit, limit

Deciding to apply for a credit card is not a decision you should take lightly. Many stores try to get you to impulsively apply at the register, and you should never agree. Credit cards can affect your financial situation for years so you should certainly think before you act. If you want to apply for a credit card, there are a few steps you should take beforehand.

Evaluation

Before you apply for a credit card, you should do an evaluation of your finances. Get a free credit report and make sure everything is accurate. You will want to know what your credit score is so you will know which cards to look at when you apply for a credit card. If there is anything unusual or incorrect on your credit report, deal with it immediately. Many people never look at their credit report, and therefore have no idea what may or may not be on it. It is important to clear up anything incorrect on your credit report before you apply for a credit card.

Research

After getting everything strait with your credit report, you should begin researching. Research cards that fit your credit score. Make a list of important characteristics you want in a credit card. Look for the best deals in several areas. Before you apply for a credit card, you should make sure you understand everything about the card and the company's policies. Look at the interest rates, rewards programs, and other characteristics.

Be wary of great introductory offers. When you apply for a credit card, many companies will offer you fantastic introductory deals. It is great to take advantage of these deals, however you should be sure that the terms won't change unexpectedly after the introductory offer time period is over. For example, you will need to know what the interest rate will be after the offer before you apply for a credit card.

Conclusion

Once you find several credit cards with terms that you understand and like, categorize them by your choice. Apply to one at a time. If you only need one card and apply to three, you run the chance of getting approved for all three. This will not only reflect on your credit report, but also give you the inconvenience of canceling two of them. So, be patient and wait for a response.

When you apply for a credit card, you are vowing that you will be responsible financially. Deciding to apply for a credit card means that you know you will be able to pay the balance off in a timely manner. If you are not sure of your ability to pay, you should never apply for a credit card. Be responsible, examine, and research before applying!

By Morgan Hamilton

Labels: apply, business credit card, card, credit, how, tips