How to Select a Business Credit Card

Credit cards have a positive role to play in business, providing you don’t misuse them.

While it’s great to have the facility of a credit card (or two, or three …), you need to be sure that you can pay the bills at the end of the day. A large number of credit card companies “generously” offer consumers credit cards in the mail, without any prior discussion or request from the consumer for access to the facility. It’s easy to say “yes please”, but not always that easy to maintain credit repayments.

You also need to know what you are letting yourself into when you choose your credit card. Be aware from the very beginning that not all credit cards are created equal!

Credit Card Options

Generically, there are just a handful of different types of credit card, including:

• standard or traditional credit cards, usually with limited features,
• premium credit cards that offer high limits and usually have a range of additional features including travel insurance and product warranties, making them a great business option,
• retail cards that are associated with a specific retail store, and more commonly considered for personal (rather than business) use,
• affinity cards that enable you to donate to charities – which can work in terms of tax rebates,
• secured credit cards that require a cash deposit as surety.

Credit Card Plans

According to the Federal Reserve System (FRS), there are currently more than 150 major issuers of credit cards in the USA. Since 1990, the FRS has conducted a six-monthly survey of credit card plans that shows:

• the institution and its telephone number,
• availability and credit card plan, which shows whether the card is available nationally or only in selected states,
• the annual percentage rate as well as annual fees charged,
• type of pricing, and whether it is fixed, variable or offers periodic rates for different levels of outstanding balance,
• index, which indicates interest on variable-rate plans including prime rate and various Treasury bill rates,
• any grace period allowed (in days),
• any other features or benefits offered with the credit card.

When you see just how varied this data is, you will understand how important it is to know what you are dealing with.

According to the FRS’s most recent survey released in 2011, well over half of the financial institutions offer variable rates. Only one, the Bank of Maine, offers a rate that changes periodically. Only a very small percentage of the institutions (a total of 27 according to the survey) charge an annual fee. When a fee is charged, it ranges from 9% (charged by the regional First State Bank of Newcastle) to 99% (charged by the National Association Credit One Bank), with most being somewhere between 12% and 50%. The so-called “grace period” ranges from 21 to 30 days, with the National Association Credit One Bank being the only financial institution to allow zero grace days.

Other Benefits of Having a Business Credit Card

Before you decide which credit card to take, make it your business to find out what other enhancements or features the lender offers. These are remarkably varied and may include some type of cash rebates, purchase protection and warranty guarantees, automobile rental and/or travel accident insurance, various discounts on goods and services you purchase, even incentives like frequent flyer miles.

Benefits might also include reduced introductory interest rates and free credit card registration.

Credit Protection Laws

Irrespective of the business credit card you choose, there are fortunately a large number of federal laws in place to protect you. For instance in terms of the Credit Card Act, 2009, credit card companies cannot willy-nilly increase the interest rate due on your existing balance. If rates are to increase, they must, by law give you at least 45 days notice. This legislation also imposes limits on fees charges and rate increases.

There are a number of other Acts that are intended to protect consumers who make use of credit card options. These include the Consumer Credit Protection Act, 1969, which is an “umbrella” law for four individual Acts, the:

• Equal Credit Opportunity Act, 1974, that obviates discrimination of all types,
• Fair Credit Billing Act, 1974, that forces credit card companies to credit payments promptly and correct mistakes so that your credit score won’t be adversely affected,
• Fair Credit Reporting Act, 1970, that is in place to protect consumers against deliberate or inadvertent misleading information that is held in credit files at credit reporting agencies,
• Truth in Lending Act. 1968 that forces credit card companies, amongst other things, to use consistent methods to compute the cost of credit, and to ensure they disclose credit terms.  The Fair Credit and Charge Card Disclosure Act, which was added to the Truth in Lending Act in 1988, compels lenders to disclose all terms related to the card they are offering you.

An additional piece of legislation, the Fair Debt Collection Practices Act, 1977, comes into play if you get into trouble with your credit card repayments. Essentially it prohibits abusive debt-collection practices, including trying to call consumers before 8 am and after 9 pm.

So take all these factors into account when you select a business credit card.

If you found this helpful, please share it below. Thank you!