Business credit cards are a great way to separate your business and personal finances as a small business. These credit cards typically come with higher spending limits than personal cards, and the best options offer tools to help you build your business, Ramp explains.
Business credit card limits are usually higher than personal credit card limits simply because a business spends more than an individual.
When determining the credit limit for a business credit card, card issuers usually assess a business's creditworthiness based on its revenue, credit history, and financial stability. If your business has a good credit history or is generating a lot of monthly revenue, you may qualify for a higher credit limit.
There are also some credit cards with no preset spending limits. Unlike traditional credit cards, these cards allow businesses to spend based on their current financial situation and payment history. While there is no such thing as a credit card with no limit, corporate credit card limits are typically much higher because they use this system.
A strong business credit score, substantial revenue, and a low debt-to-income ratio will get you a higher limit on business credit cards. Issuers set each applicant's credit limit based on their overall creditworthiness, weighing factors like personal credit, business income, and debt:
If you haven't established any business credit, getting a business credit card can help. Once you've done so, the credit card company will begin reporting your activity to business credit bureaus. Over time, making on-time payments and maintaining a low credit utilization ratio will help you qualify for a higher limit.
You can also build your business credit by doing the following:
Getting your credit card is the first step. Next, it's important to use it responsibly. Follow the tips in the section below to use your new credit card to build your credit score.
In the United States, the average credit limit for a business credit card is between $5,000 to $50,000 for businesses with average financials. However, well-established businesses with strong revenues and cash flow can qualify for much higher limits.
High-limit business credit cards are effective financial tools to help you build your business, but if misused, they can harm your growth. Follow the four best practices below to ensure your credit card helps your business succeed.
Keep spending in check
Having a high credit limit doesn't mean you should use it. In fact, it's best practice for both personal and business credit cards to keep your spending below 30% of your credit limit. Going above this threshold may have a negative impact on your credit score. Moreover, keeping your balance low and manageable will make it easier to pay the bill on time.
Beyond helping your credit score, limiting spending also ensures your business remains financially flexible. Large balances can restrict your ability to make unexpected purchases or investments. By maintaining a conservative approach to spending, you can navigate economic downturns or seize new business opportunities without the added pressure of high credit card debt.
Pay more than the minimum
Minimum payments typically only cover interest and a very small percentage of your balance. When you make minimum payments, you can expect to be in debt for a long time—and pay substantial interest in the process. Instead, try to pay off your credit card in full each month to avoid interest entirely. If you can't pay it off each month, always make more than your minimum payment to keep debt, and the interest that comes with it, at bay.
Making larger payments also allows you to pay off your balance faster, which can help free up your credit limit for future use. This way, your credit card remains a tool to support your business operations, rather than a burden. It also puts you in a better financial position to manage cash flow, particularly during periods of growth or expansion.
Understand how payments are applied
If you have more than one business credit card, minimum payments are applied to the lowest-interest balance first. When you make higher-than-minimum payments, the excess is applied to your highest-interest balance first. This is another reason why it's important to pay more than the minimum whenever possible.
Knowing how payments are applied also gives you the ability to prioritize repayment strategies. For example, focusing on high-interest balances first will save your business money over time. This tactic, combined with regular reviews of your statements, can help you stay proactive in managing your debt and improving your overall financial health.
Stay in the know
Check your monthly statement regularly to keep tabs on your debt load. Also, read every transaction to catch any potential fraud early. Reading over every transaction also gives you information about your spending habits that can help you better manage your business.
Consistently reviewing your account activity can also help you identify patterns that might signal unnecessary expenses. Recognizing these trends early allows you to adjust spending and allocate resources more effectively, ensuring your business stays on track to meet its financial goals.
This story was produced by Ramp and reviewed and distributed by Stacker.
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