Information about Business Credit Cards

From the desk of: Cheryl Antier

I get a lot of email from entrepreneurs asking me about business credit cards. I've created this page of "Frequently Asked Questions" about business credit cards from many of those questions.

Q. I just got turned down for a small business credit card because the bank said my debt service to income ratio was too high. What is that ratio?

A. Banks look at many factors before granting credit for your business, including credit card applications and loans. For detailed information on the ratios used and how to figure out what your business' debt service to income ration is, I found a great resource is citi-bank's Website for small business owners. To find out more, click here:

Q: My bank requires that I personally guarantee my business credit card before approving it. Is this a good idea?

A. It depends on your situation. Some banks require all owners/partners in a business to personally guarantee business credit cards/loans as a way of protecting them in case your business fails. If you're just starting a business, you might have to use your personal credit to help guarantee your business credit - but there are banks that don't require this, so my advice would be for you to shop around. Luckily the Internet allows you to do that much quicker and easier!

Q: What are the disadvantages to guaranteeing my business credit card personally?

A. Just like with other business credit, there are some important factors to take into consideration before you decide to personally guarantee your business credit cards. For example, any loan you personally guarantee (whether it's for business or not), lowers the amount of available credit you have. Also, if your business fails, when you've guaranteed the loan, you are still liable, and the ramifications could mean that you lose whatever collatoral you've put up (such as your home). The third disadvantage is that if you personally guarantee your business credit, the good credit will be reported in your name - not that of your business. And even if your bank also reports it in your business name, it will show that you've personally guaranteed the loan - meaning that your business credit rating will be lower.

Q: I just got a "pre-approved" business credit card offer in the mail. Should I sign up?

A. If you're like most people, you've probably received several “pre-approved” credit card offers in the mail in the last year or so. Having credit is necessary in today's "global economy" - and more than 50% of small business owners use credit or credit cards to finance their start-up or pay ongoing expenses in their busiess.

However, getting and using credit wisely is also important. Therefore, before you sign the next pre-approved credit card application you get, take some time to examine the fine print carefully. Here are some things you should look at:

The Annual Percentage Rate (APR). If the interest rate is variable, how is it determined and when can it change?
The periodic rate. This is the interest rate used to figure the finance charge on your balance each billing period.
The annual fee. While some cards have no annual fee, others expect you to pay an amount each year for being a cardholder.
The grace period. This is the number of days you have to pay your bill before finance charges start. Without this period, you may have to pay interest from the date you use your card or when the purchase is posted to your account.
The finance charges. Most lenders calculate finance charges using an average daily account balance—this is the average of what you owed each day in the billing cycle. Look for offers that use an adjusted balance, which subtracts your payment from your beginning balance. The finance charges you will pay are usually lower. Stay away from offers that use the previous balance in calculating what you owe; this method has the highest finance charge.
Also don’t forget to check if there is a minimum finance charge.
Other fees. Ask about special fees when you get a cash advance, make a late payment, or go over your credit limit. Some companies charge a monthly fee regardless of whether you use your card.

Q. My credit card company just sent me a letter offering to let me "skip a payment" for the holidays. Should I take them up on it?

A. If your credit company invites you to skip a monthly payment without a penalty, it is probably not doing you a favor. You may still owe finance charges on your unpaid balance. And interest will probably be adding up on any purchases you make after the due date you skipped.

Q. What is the Equal Credit Opportunity Act, and what does it do for me?

A. The Equal Credit Opportunity Act protects you when dealing with anyone who regularly offers credit, including banks, finance companies, stores, credit card companies and credit unions.

When you apply for credit, a creditor may not:

Ask about or consider your sex, race, national origin or religion;
Ask about your marital status or your spouse, unless you are applying for a joint account or relying on your spouse’s income, or you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas and Washington);
Ask about your plans to have or raise children;
Refuse to consider public assistance income or regularly received alimony or child support; or Refuse to consider income because of your sex or marital status or because it is from parttime work or retirement benefits.

You have the right to:

Have credit in your birth name, your first name and your spouse’s last name, or your first name and a combined last name;
Have a co-signer other than your spouse if one is necessary;
Keep your own accounts after you change your name or marital status or retire, unless the creditor has evidence you are unable or unwilling to pay;
Know why a credit application is rejected—the creditor must give you the specific reasons or tell you of your right to find out the reasons if you ask within 60 days;
Have accounts shared with your spouse reported in both your names; and
Know how much it will cost to borrow money.

For additional information about credit, contact the HUD Housing Counseling Clearinghouse at 1-888-466-3487, the Federal Trade Commission , the National Consumer Law Center , and the “Money” link.

Q. I just got an offer from a credit card company with a very low introductory rate - should I accept it?

A. Some cards are advertised with very low introductory interest rates called teasers. The rate is only good for a short period of time. If you know you can pay what you owe while the low rate is in effect, it could be a good deal. But if the teaser time runs out and you still owe money, you could end up paying a higher rate than you might have without the special introductory rate.

Check the fine print of the offer - in many cases, if you make just one late payment, it could cancel the teaser rate, and you'll be forced to pay a much higher interest rate.

Q. My wallet with all my credit cards was stollen. What should I do?

A. Call your banks and credit card issuers immediately when you suspect a credit or charge card has been lost or stolen. Many companies have toll-free numbers and 24-hour service to deal with such emergencies.

By federal law, once you report the loss or theft of a your card, you have no further responsibility for unauthorized charges. In any event, your maximum liability under federal law is $50 per card.

Q. I just checked my credit report and my credit card company has reported that I was late on a payment, but it's not true. What should I do?

A. If there is inaccurate or incomplete information in your credit report:

Contact both the credit reporting agency and the company that provided the information to the CRA.
Tell the CRA in writing what information you believe is inaccurate.

Under The Fair Credit Reporting Act, the information provider is required to investigate and report the results to the CRA. If the information is found to be incorrect, it must notify all nationwide CRAs to correct your file. If the investigation does not solve your dispute, ask that your statement concerning the dispute be included in your file. A notice of your dispute must be included anytime the CRA reports the negative item.

If the information is accurate, only time, hard work, and a personal debt repayment plan will improve your credit report.