Given the variety of business credit card programs available, anyone with decent credit should seriously consider one. Although intended primarily for small business owners, the offers combine every kind of credit card contract. Business credit cards are available with low APR, zero introductory interest rates, balance transfer options, rewards (like airline miles or cash back), and on and on. Business cards offer travel discounts on cars and hotels, frequent flyer miles, travel insurance, even restaurant savings.  Every major financial institution offers business credit cards. Some have several programs. Everything from Platinum cards to Debit cards are offered, usually with the same low rate and no annual charge. And here’s the catch — which for once is in your favor. Anyone can consider him or herself a business owner. No special proof (such as a business license) is required. Most programs are available through the issuers’ web sites. You fill out the form, a credit check is performed by an automated computer system, and you receive an answer within seconds.

Business card contracts usually offer comparatively lower interest rates and much higher credit limits. (Of course, it’s expected that you will have somewhat better credit history.) Issuers are eager to offer superior benefits since business owners generally spend more and tend to maintain a higher balance.

They’re convenient for large or small expenditures, whether office furniture or stationary supplies. Gone is the need to maintain a petty cash account. And every business owner has seen the day when emergencies arise that present the need for unexpected additional funds. It’s times such as those when those high credit limits come in handy.

Nearly all provide, free of charge, quarterly or annual reports that categorize expenses. This helps manage cash flow and makes it easier to track tax deductible items. They help around tax filing time, when you need to total those items. They also help separate personal from business expenses.

Since issuers are eager to do business with other businesses, the customer service associated with such cards is usually superior. Different 800 numbers from those offered consumers are available and the person on the other end is often more eager to assist.

Business cards can be issued to more than one individual. The business owner, or authorized representative, can specify an unlimited number of additional card bearers, who receive a different account number. This makes tracking expenditures by different employees easier.

It also makes abuse easier to detect. Terminating one account is as easy as a phone call and your primary account remains active and unaffected. Of course, as the primary account holder, you are still held responsible for any charges made. One way to deal with this unfortunate, but all too common, issue is to use pre-paid cards. Pre-paid cards allow you to load a card with a specified quantity of funds, which automatically caps the amount for which you can be liable.

For businesses that experience lag in accounts receivable (and who doesn’t?), business cards can help smooth out cash flow bumps. Pay now with the card, invoice the client, and you’ll be better able to time paying your expenses when your clients pay you.

Understanding the terms and conditions of credit cards

When you’re looking at a credit card offer, take a look at the small print - it seems like a maze, but it’s vitally important. With the trend nowadays towards easier-to-read “summary boxes”, there aren’t as many excuses for ignoring the terms as there used to be. Anyway, credit card lenders are devious, and there are plenty of things there designed to catch you out - here’s what you should be on your guard against:

1. Annual fees. Even though you’re already paying them interest, many credit cards still charge you an annual fee. It’s not as common as it once was, but it’s still around. You should be especially careful to check for fees on Gold and Platinum cards - even though they’re not that hard to get any more, they still tend to charge much higher fees than normal cards.
2. Penalty charges. Pay attention to what kind of fees you’ll be charged for a late payment, or if you take a cash advance, or if you accidentally exceed your limit on the card. Some cards have unjustifiably high fees, and you shouldn’t sign up for them.
3. Interest method. This is one of the most overlooked of all the things in the small print, just because it’s so hard to understand. Essentially, every company has a slightly different way of working out how much interest you should pay each month. There are three main methods:
   1. With the “adjusted balance” method, you are charged interest on whatever your balance was when the company sent the bill.
   2. Another version of this is the “previous balance”. You’re charged interest on your balance as it stood at the end of the billing cycle before this one, regardless of how much you’ve spent or paid off since. Odd, but easier to understand.
   3. Then there’s the average daily balance. This is the most complicated, but also the most common now. Your balance from the end of each day in the billing cycle is added up, and then divided by how many days there were, and interest is charged on this amount. This method is only good for you if your balance jumps around a lot, as it avoids you paying lots of interest on a balance that just happened to be large on the billing date.
4. Also, make sure you look at the rate of interest each month, instead of just relying on the APR. The APR is an estimate of the total cost of borrowing - it is the monthly interest plus the various charges that will show you exactly how much you would pay.
5. Grace period. Check that the card you’re looking at has a grace period on purchases. Otherwise, you could end up being charged interest from the minute you spend. Almost no cards have a grace period on cash advances or credit card cheques, however.
6. Currency conversion fees. If you plan to use your card abroad, you should take a look at how much the card charges for transactions made in other currencies. Some cards can be much more expensive than others.

Everything can happen. If you get turned down for a credit card:

1. Try, try again. Don’t get upset if you’re turned down at one company – they might have some strange requirement that you happen to not meet. Always try three before you start to despair. Whatever you do, though, don’t spend a whole day applying for every credit card you can find, just to see if anyone will take you. Each check is counted, and lots of checks on your record make you look desperate, making it even less likely you’ll get a good card - this is known as “shot gunning” your credit.
2. Get your credit report. Send off to the credit reference agencies to get copies of your credit reports. There might be something incorrect on there that’s making you look bad, and you need to get it corrected if there is. Make sure you do all this in writing, so there are records of it - don’t phone up and let them fob you off.
3. Phone the company. It’s not a good idea to always deal with credit card companies by post or on the Internet - you should try to phone them up and speak to a real person. This way, you can tell them all your circumstances, make sure everything went through correctly, and question them if you get turned down. If you directly ask why you haven’t been accepted, then they usually have to tell you. If you’re willing to be pushy, you might even get the decision reverse. If the person you got through to won’t budge, then always ask for their supervisor before you hang up.
4. Apply for a less prestigious card. Yes, I know, it sounds bad - but you want a credit card, don’t you? Get a high-rate card from the company whose card you want, and then pay it off on time each month. You’re building your credit rating. The chances are that you’ll be able to persuade the company to replace your card with the lower-rate one after a few months.
5. If you have a very bad credit rating, you might find that you are only offered secured cards. These cards require you to make a cash deposit before you can start using them. It’s worth saving up the deposit and using the card for a while, though, as you’ll usually be offered a normal card quite quickly, as long as you don’t do anything terrible with the secured one.
6. If that all sounds like too much trouble, then you might like to try a pre-paid credit card. These cards must be loaded with money in advance, but from then on work like a normal credit card - except you don’t pay any interest or fees! Well worth it if you only wanted a card for the convenience anyway.

Tags: credit card

Sometimes, what we hear about credit cards can prove to be rather hilarious and illogical. This is why we have introduced this side of credit card to you:

One of these hidden costs is connected with the shorter and shorter grace periods. In the past, people enjoyed a so-called grace period from the moment they used the credit card to make a purchase till the moment the bank started charging interest on the money used. If you paid off the card before the end of the grace period, you didn’t have to pay any interest on the loan. Normally, that period was 30 and up to 59 days.

Now, however, things are different. Many banks have reduced the grace period to just 20 or 25 days. If you’re not aware of this, and are still counting on a 30-day grace period, then you’re paying interest and you’re not even aware of it. But things are sometimes even worse, as some banks no longer allow any grace periods at all. In other words, they already started charging interest the minute you make a purchase.

You should have a look at the papers accompanying your credit card so that you can find out how long your grace period is. If you find it too short, perhaps you should think about canceling your credit card and getting one that grants you better credit terms.

Late fees are another subtle money drain. It is very important that you should know how much your credit card company charges in such cases. If you add high fees to a shortened grace period, you’ll be very surprised to see how much money you’re spending unawares.

It is a very good idea to send off the cheque or to perform the electronic money transfer on the same day when you receive your credit card bill. First of all, you might have to pay a lot of money in late fees if you don’t. Second, any delays will show on your credit report and make you look like a risky borrower to potential lenders. But perhaps the strongest reason is that the credit card company is entitled to raise your interest rate if you are late on even one single payment. And this applies to any late payment, no matter who the lender was. If your credit report shows it – and it will – the credit card company can raise your rates.

It shouldn’t be very difficult to pay more attention to these fees. If you’re patient enough to keep a record of the money you’ve saved this way, you’ll be surprised when you see the total amount at the end of a year.

What in reality interest rate means

For all people who shop around for the best rate, there are few who have taken the time to sit down and add it all up. After all, why would you bother? The answer is that understanding just how interest rates work can help you see how important small differences in rates and payment amounts can be.

Interest rates are compound: It is important to remember that what you owe is compounded – that means you pay interest on the interest you owe from the month before. That means that if you’re paying 2% per month in interest, you’re not paying 24% per year – you’re actually paying 26.82%. Charging interest monthly instead of yearly is a trick to make it feel like you are paying a very low price for your borrowing.

A thought experiment:

Here’s a question: would you rather have $1 million, or $10,000 in a savings account earning 20% per year in compound interest?

Well, let’s see how that $10,000 would grow. After 10 years: $61,917. 20 years: $383,375. 30 years: $2,373,763. 40 years: $91,004,381. 50 years: $563,475,143.

So after fifty years, you’d have over $500 million?! Well, not so fast. Of course, you have to take inflation into account – if we say inflation is 5%, then that money would have the buying power that $10,732,859 does today. Still, that’s not a bad return on your investment of $10,000, is it?

That’s the power of compound interest, and the way the credit card companies make their money (it’s also the way pensions work, and the reason the prices of things seem to rise massively as you get older). Be very, very afraid of compound interest. Or, of course, you could start saving, and be very glad of it…

Compound interest adds up:

Let’s work through an example on a more real kind of scale. Let’s say you have an average unpaid balance of $1,000 on a card at 15% APR.

You will owe $150 in interest for the first year you borrow. However, this amount is then added onto the balance, and interest is charged on that. The second year, you’d owe another $172.50, for a total of $1322.50. It goes on, with totals like this: $1,520.88, $1,749, $2,011.35.

After just five years at 15%, you’d owe double what you borrowed. And after 10 years, you’d owe four times what you borrowed! Bet you weren’t expecting that. If you let something like that carry on for long enough, you’ll end up paying back that credit card for years afterwards, paying back what you borrowed many times over and still not clearing the debt. Most people don’t work this out, and feel that the payments must simply be their fault for spending too much money to begin with.

One percent of difference:

One more thing. You might think there’s not that much difference between a card that charges 15% APR and one that charges 12% APR. Let’s see the difference the lower rate would make to that $1,000 borrowed for five years. Remember, after five years at 15%, you owed $2,011.35.

At 12%: $1120, $1254.40, $1404.93, $1573.52… $1762.34 after five years. So you’ve saved $249.01 from that 3% difference in APR – in other words, you’ve paid almost 25% less interest.

Tags: credit card