A business secured credit card is an important tool for building or rebuilding a business’ credit score. When business funding is hard to acquire, a business secured credit card uses the card holders saving account as collateral for the card’s line of credit. This means the bank will not need a credit score from the cardholder, since the deposit covers their risk. For first time business owners, these cards can be a great way to establish business credit. Without this credit, it’s hard to get business loans or other unsecured lines of credit. However, a business secured credit card needs to be used correctly to be most efficient. The following tips will ensure your company gets the most out of a business secured credit card.
Balance Your Deposit Size
Your business secured credit card’s buying power is tied to the deposit serving as its collateral. Your deposit needs to be substantial to support your line of credit. This can be hard, since those funds must sit in the account and do nothing. Make sure the funds can be left there to cover the credit line. The balance is what matters here. If the deposit is too small, the card won’t build any real credit for your company. If the deposit is too large, your company might encounter a cash flow problem, it can’t handle. Your deposit should therefore be carefully thought out in advance.
Don’t Use Too Much Credit
Limit how much of your credit you use at any one time. You build credit with the card issuer when you demonstrate that you don’t need a lot of credit. The number to watch here is your “credit utilization ratio.” This is how much of your available credit your using at any one moment. To build solid credit and have financial leverage, your ratio should be 30% or under most of the time. This also gives you a solid credit buffer in case of an emergency. Use the business secured card to prove you’ll be responsible with credit.
Keep Personal And Business Expenditures Separate
Never use your business card for personal expenditures. This will save your company a great deal of time. If your personal and business expenses are on the same card, it will be much harder to file taxes. Otherwise, you’ll have to go through your statement line by line to separate the two. Moreover, keeping the card business expenditures only will protect your personal credit. If the two are linked it can hurt your personal credit. Keep them separate from the start.
Pay Your Bills, On Time
Make sure you always pay the monthly bill, and on time. Late fees on a business secured card are higher than a normal credit card. What’s more, late payments will bring down the credit you’ve built in the card. For best results, pay the full amount each month so you start each month with a zero balance. If that’s not possible, at least pay the minimum. Timely payment is the most important factor of good credit. Make sure you’re aware in advance of monthly due dates and never miss one.
Have An Exit Strategy
Ideally, you won’t need a secured business credit card long term. Begin planning early for how you’ll leave the card and acquire a proper business credit card. Many business secured cards will help with this. Check to see if yours can be upgraded to a standard card. Some cards will permit this after a certain period of responsible use. If your business secured card won’t allow this, then plan out how you’ll switch to a new card for more types of working capital. A secured business card is designed to be temporary. Be prepared for the moment you won’t need it anymore.
A business secured credit card can build a solid financial foundation for your business. To do this though, you need to know how to get the most out of it. Think about how large the deposit should be. Don’t use to much of you credit at any given time. Keep business expenditures separate from personal. Pay the bills on time and in full. Have a plan to exit the card when you’re ready. With these tips, your company’s well on the way to a stronger credit future.