A bad credit score can feel like a huge roadblock to your business’ success. But you are not alone; many small business owners run into this issue from time to time. There are many reasons why your credit score might be low; fortunately, there are ways to get a business credit card even if you do have bad credit.
First and foremost, don't make the mistake of using your personal credit cards for business purchases. It’s always best to keep your personal and business expenses separate, not just with your bank account, but also with your credit cards. You definitely would not want to miss out on any possible tax write-offs simply because you can’t remember all of your business-related expenses.
Having said that, in some circumstances it is possible to use a completely separate personal credit card as your business card; this would be a card in your name which is used exclusively for business-related purchases. This may be one way to help small business owners with bad credit eventually get the business credit card they need for larger purchases. There are a few credit cards that aren’t business specific that can be used this way, though the importance of having a credit card in the name of your business can't be understated. A true business credit card can potentially be used to keep your business from affecting your personal credit score.
There are essentially two kinds of credit cards; secured and unsecured credit cards. Either can be used to help your business at different times in your business venture. One type, the secured credit card, will be considerably easier for you to obtain, while the unsecured card is the one you will work toward by raising your credit score.
When you have bad credit, it is easier to obtain a secured credit card than an unsecured credit card. That is because you will essentially put up a deposit as collateral; the deposit is usually the same amount as your credit limit. In this scenario, the bank has far less risk because they can always liquidate your deposit if you fail to make a payment or otherwise fail to honor the terms of the credit card agreement.
An unsecured credit card may be next to impossible for an individual with bad credit to obtain for themselves or their small business. Unsecured credit cards mean that there is no deposit or collateral protecting the bank. Instead, it is up to you to prove to the lender that you are financially and fiscally responsible enough for your chosen credit card. Generally, you will be able to accomplish this once you have a good credit score (around or above 620). The fact is your credit score is the basis of your financial reputation. If you have a good enough score, creditors will feel that they can trust you and would be more willing to offer you credit terms.
If you do have bad credit, now is a good time to look at a secure credit card, and some worth looking at are listed below. This way, you can begin making purchases for business-related items and then making timely payments of the card. A history of on-time payments will help you work your way toward a healthier credit history, as each month the lender will report to the credit reporting agencies the fact that you are maintaining your account as required.
The Wells Fargo Business Secured Business Card has a low annual fee, currently $25, and no fees for their rewards program. This card can help your business get started on its positive credit score journey while earning reward points for purchases. Currently, the Wells Fargo card has an APR interest rate of 17.4% (variable). If you are late making a payment, the fee can be as high as $39; moreover, late payments can negatively affect your credit score.
The BBVA Compass Secured Visa Business Credit Card is not available nationwide, but if you are eligible to get it (based on the state your business is located), it provides you with an easy way to manage your credit. If you have staff, you can add employee cards to your account at no additional cost, and the spending limits can vary for each card. This credit card has an annual fee of $40, which is on the high end, but it also has a great rewards system for purchases.
The Capital One Spark Classic for Business Credit Card is good for those with average credit or who have little-to-no credit history. Basically, it’s a great business credit card for those just starting out. There is no annual fee, you can add employee cards, and it allows you to build reward points. The trade off, of course, is that it does have a higher APR interest rate of 25.24% (variable).
The Discover it Secured Card rewards you with 1-2% cashback on purchases and has no annual fee. In your first year, as an added incentive, Discover will double your rewards. The Discover It card is not designed specifically for businesses, so there is no option to add an employee card. As long as your business expenses are exclusive to this card, it is still a great option for a small business owner with bad credit.
The OpenSky Secured Visa Credit Card doesn’t require a credit check yet it has similar benefits to most other secured credit cards. As long as you have at least $200 for your collateral deposit, it is easy to get approved. For bad credit owners who need to start rebuilding their credit score immediately, this is another great card to have. It has a standard annual fee of $35, and a grace period of 25 days.
The First National Bank of Omaha Business Edition Secured Visa Card is only available in seven states (primarily located in the mid-west and west) but, if qualified, it allows a business owner to obtain a secured credit line of up to $100,000. The annual fee is $39 and late fees are dependent on the credit card balance (lower than $500 is $35, higher than $500 is $39). This card is considered one-of-a-kind because it also provides cell phone protection against damage or theft.
If your search for a credit card is fruitless because your credit score is that poor, the Bento For Business Debit Card could be a viable option. It is not a credit card, so it won’t help you rebuild your credit score, however it will allow you to manage your business finances with ease. You can set aside finances for your business and set spending restrictions by category. Accounting is simple because you can sync it with your accounting software.
Bento also can provide you with employee cards that you can control. The first two cards in your account are free, but the cost can be staggering above that. For 3-10 additional cards Bento charges $29 per month, with prices moving higher as you add more than 10 cards. However, Bento will waives all monthly fees if you spend more than $20,000 a month.
Another option worth looking at for those with bad to fair credit who need to make larger purchases is a line of credit. A line of credit gives you access to a pre-determined pool of funds to draw from as and when needed. The amount you withdraw is paid back either on a weekly or monthly basis, so there is some flexibility with the payback. However, the interest rate on a line of credit tends to be higher than on other types of loans, in some cases approaching interest rates akin to a credit card. The line of credit may or may not be secured, but you will be able to get a better interest rate if it is a secured line of credit.
Once you apply and are approved, you are given a credit limit. This is the amount you can borrow without needing to reapply. When you need the funds, you make a request to draw the amount from the credit line. There may or may not be a transaction fee for each draw, so you should be sure to read your line of credit agreement carefully.
There are a number of things you can do to improve your credit score. First, be sure to regularly monitor your credit score as you use your credit card. Some credit card companies offer this as a perk for using their card so you can see your actual score through their website. Second, use a calendar, set up a tickler or place your payments on autopay; the bottom line is do whatever you need to do to ensure you are paying off your credit card purchases on time. Third, be realistic; before making any major purchases ask yourself if you can handle the increase in the monthly payment. If you might struggle, then you might not actually be able to make your payments on time which will hit your credit score hard. If you do need to make a big purchase, consider a loan for your small business, rather than a credit card which could ultimately hurt your credit score.
Properly managing your business credit cards can help you change your bad credit to good. As long you can find one lender that will accept your degree of creditworthiness, you can work toward improving your credit score. As you prove yourself, that will open the door to more rewards and greater opportunities.