We all know and use credit cards — but do we ever think about how credit purchases affect our financial health?
Before you make your next few credit purchases, you should think about how a credit card works. If you run a business, you have to know what credit purchases do for your company’s financial health.
Let’s start with looking at the common credit card terms:
Credit Card Terms
Most credit cards will not charge an annual fee, but those that do will likely charge a flat fee each year in order for you/your business to use the credit card.
All credit cards will have a credit limit. This is the maximum spending allowance that your credit card allows. The longer your history of using credit cards and paying responsibly, the higher your credit limit will be. A business can expect to have a higher credit limit.
If you don’t pay your fees on time, you will be charged a late fee based on an Annual Percentage Rate (APR). You want one that is as low as possible so that if you are unable to make a payment on time, you don’t face a huge penalty fee.
These are the basic credit card terms. There are several more, but these are the basic ones that all business owners should know. The other terms involve additional fees that might be charged, such as when you pay for a good/service in a foreign jurisdiction.
Avoid Paying With Credit
As you can already see, paying with a credit card can come with consequences if you are unable to pay your expenses and bills on time. You want to make sure that your expenses/bills are paid with cash or check. You want to also make sure that they are always paid in full whenever possible.
Of course, as a startup business, you can expect this to not always be possible. You want to take a look at accounts receivable financing.
This lets you receive a cash advance to pay your bills as you wait for your customers to pay you. This is a much better option to pay your bills instead of making a credit card purchase as you wait for your income to come in.
Build a History With Credit Purchases
Although what you’ve read so far might convince you to avoid credit cards altogether, credit purchases are necessary for building a credit history.
A credit history helps you take loans and make large purchases, and it gives your business a reputation for fiscal responsibility. Where you can afford to pay with a credit card, you should do so. As soon as a purchase gets reflected on your statement, you should make a payment in full.
The more frequent your payments are and the less-common an occurrence of negligent payments are, the faster you can build your company’s credit history and get a great credit score.
Find the Right Card
Now that you know the importance of credit purchases, you can find the best credit card for your business. Make sure to share this guide with your fellow entrepreneurs.
Read more great business tips on our website!