Ok - the offer sounds good. But my issue is that we are in preparation to buy our first home and I have been very cautious about opening any new cards - have not opened anything since last October. Will a credit card in the name of my business impact my credit (and show on my reports) in the same way as me opening a personal card? Or does credit get established in my business name? The offer was addressed to my business name, attention my name (it's a sole proprietorship). Any business owners out there?
Updated on July 7, 2007.
WHEN TRYING TO get a small business off the ground, it's not essential to have a credit card. But it sure helps.
Packing some plastic can help alleviate cash-flow crunches. And while it's not the best source of capital, a credit card can obviously come in handy when a purchase is necessary and cash is tight. Many cards also come with handy software, making it easy to track expenses and keep records for tax purposes.
But there are drawbacks to small-business credit-card usage as well. And knowing them beforehand could save you a lot of heartache. Perhaps the biggest: Your personal and professional finances are blended, at least for the first few years. A business credit card carries the same personal liability as a personal card. So if the business defaults on credit-card payments, a creditor can come after the person who signed the card for payment. Most lenders require borrowers to agree to this provision on the card application.
Moreover, your small-business credit card will be noted on your personal credit reports. (Meaning those provided by Experian, Transunion and Equifax.) A few late payments could seriously damage your personal credit score, while a big debt run-up by the business could make you look more overextended than you really are, regardless of the payment history, explains Gerri Detweiler, author of "The Ultimate Credit Handbook."
The good news is, the personal-liability agreement isn't always set in stone. After a few years of regular payments, a lender might be willing to remove the personal-liability component, says Jeffrey Langer, an attorney with Dreher Langer & Tomkies, who specializes in consumer financial services and banking law. But "it would inevitably have to be negotiated on a case-by-case basis." And no matter what, once your business has established its own credit history, you should be able to remove your small-business credit card from your personal credit reports.
One other word of caution: Because business credit cards are meant to be used by companies, not consumers, they come with fewer consumer protections than a personal credit card. For example, with consumer cards you can dispute billing errors on the account within certain time limits, and during that time the credit-card company cannot list that disputed amount as delinquent, or cancel the card. Not so with business credit cards.
The same goes for asserting "claims and defenses" when you order merchandise and receive it in poor condition. With a personal credit card, you can dispute the charges, and if the vendor won't cooperate, the credit-card company will step in on your behalf. With a business card, the credit-card company won't get involved with the dispute.
So is it even worth it to carry a small-business card rather than a personal card? You bet. Once your business has established a solid track record of its own, you can take steps to separate that account from your personal finances — which is obviously a good thing. But you need to wield the card wisely.