How to use business credit cards the right way

Owning a business is rewarding, but it comes with its fair share of financial challenges. Juggling business expenses, keeping track of receipts, and maintaining a smooth cash flow can be overwhelming for entrepreneurs. This is precisely where a business credit card can come in handy.

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Business credit cards can be a great asset for small business owners who need quick financing. By using them, you can boost your company's buying power while building up your business credit. Knowing how to use business credit cards properly is an important factor in taking full advantage of them and steering clear of any issues.

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In this article, we’ll get into how business credit cards work and what you need to know to use them responsibly.

How does a business credit card work?

A business credit card functions much like a personal credit card. The primary difference is that a business credit card is designed for business purchases like vendor payments, software subscriptions, equipment, and so on. You'll find options for every type of business owner, including business credit cards for LLCs, partnerships, startups, and corporations.

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Here's a quick breakdown of how a business credit card works:​

How to qualify for a business credit card

When you apply for a business credit card, issuers usually take your personal credit score into account. The minimum credit score to qualify for a business credit card starts at around 600. For the best rates, terms, and benefits, a credit score of at least 700 is best. Anything less than 600 will only get you a secured business credit card, requiring you to fund all or part of the approved credit limit.

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Qualifying for a business credit card also involves factors beyond personal credit. While a good credit score is helpful, some lenders consider other factors like business revenue, years in operation, and the amount of money you have in the bank. Building business credit through vendor financing or responsible use of other business credit lines can also be beneficial when applying for a credit card.

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The documentation you’ll have to provide depends on the credit card issuer and your desired credit limit. Prepare to present documents such as your tax returns, bank statements, business licenses, and financial projections.

How card payments and interest work

When you carry a balance on your business credit card, you must make at least a minimum payment every month. Always strive to pay the full statement balance to avoid interest charges, which can be significantly higher than personal credit card rates.

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Pay close attention to grace periods—typically 21 days—to avoid interest on business purchases made within the billing cycle. Setting up automatic payments is a good way to guarantee on-time payments and avoid costly late fees.

Tax implications of a business credit card

Properly documented business expenses on your business credit card are tax-deductible. Be sure to keep an accurate log of all company expenses, including receipts and invoices, to guarantee accurate tax filing and deal with any potential audits.

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Consider keeping separate accounts and using a dedicated business bank account for card payments to streamline bookkeeping and tax preparation. As always, consult with a tax professional for specific guidance.​

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How to use a business credit card responsibly

You can use a business credit card for all your business expenses, such as inventory, travel, software subscriptions, advertising, and employee payroll. But without proper management, expenses can quickly get out of control. Implementing clear guidelines and choosing a card with built-in controls can help you stay organized and avoid unnecessary debt.

Ensure accountability

To use your business credit card effectively, you need a system to track spending. Many cards offer built-in business expense tracking tools or integrate with popular accounting software. Not only do these expense management features ensure that you use your card responsibly, but they also help simplify your bookkeeping and tax preparation.

Set clear employee usage policies

If you provide employees with company credit cards, you should set clear usage policies to eliminate unauthorized or non-compliant spending. Establish comprehensive guidelines with your employees and choose a credit card that lets you enforce your expense policy automatically to maintain control over your business expenses.

Use your business credit card judiciously

High credit utilization—using a large portion of your available credit limit—can negatively impact your credit score. It’s best to keep your credit utilization below 30% of your limit. Consistently maxing out your credit card signals to lenders that you may be a high-risk borrower, which can lead to reduced credit limits or declined applications should you seek a business loan or line of credit.

Review your account regularly

Regularly reviewing your credit card statement is crucial for spotting any unauthorized transactions or errors. This habit also helps you keep track of spending, ensuring that you stay within budget, and aids in early detection of fraudulent activities. Frequent monitoring also reinforces better spending habits and financial discipline within your business.

Business credit card tips and best practices

1. Don’t mix personal and business expenses

One of the cardinal rules of using a business credit card is to avoid mixing personal and business expenses. While you can technically make personal purchases on a business credit card, it may violate the terms of your cardholder agreement. Moreover, this practice can lead to accounting issues, complex tax filings, and difficulties in tracking your business finances. Always use separate cards for personal and business purposes to maintain clear financial records and uphold the integrity of your business's financial management.

2. Pay your balances in full and on time

If you don't pay on time or maintain a balance, you can rapidly rack up significant interest rates and fees, which can be detrimental to your business’s financial stability. Making payments on time is a must if you want to keep a good business credit score, which is essential for taking out loans or getting additional credit in the future. Make it a habit to pay off your balance in full each month to avoid these unnecessary costs and build business credit.

3. Read the fine print on introductory offers

Many credit card issuers attract businesses with introductory offers like zero interest or bonus rewards points over a certain period. But all these promises come with strings attached. For example, you may finance a large purchase with your introductory 0% APR. If you don’t pay off the balance before the end of your introductory period, however, you’ll face a steep jump in interest rates. Be sure to read the fine print on your agreement so you know what you’re getting into.

4. Optimize your benefits and rewards

Business credit cards offer membership rewards and perks that can be highly beneficial for your business. However, many cards only offer rewards in certain spending categories or offer extra rewards on purchases like travel and dining. Instead of choosing a card that encourages spending, you might want to consider choosing a card that offers universal cash back on all purchases. That way, you won’t be incentivized to spend more for the points.

5. Make use of virtual cards

A virtual card has a unique, randomly generated number that gets attached to your existing business credit card account. This provides a strong safeguard against fraud and scams since merchants don’t have your actual credit card information. On top of the security benefits, virtual cards offer greater flexibility and granular spending control. You can spin up as many virtual cards as you need, and you can easily lock or delete them without affecting your main account.

6. Understand the impact on your personal credit

While a business credit card is for your company, in many cases, it’s still linked to your personal credit. Mismanagement of your business credit card, like late payments or high credit utilization, can negatively impact your personal credit score. Be mindful of this connection and manage your business credit card with the same caution as your personal finances to protect both your business and personal credit health.

Pros and cons of business credit cards

Business credit cards are a great way to separate your business finances, earn rewards on your purchases, and build business credit. Despite this, there are both advantages and disadvantages you should consider.

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The benefits of using a business credit card include:

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• Reward programs: Eligible spending can provide ways to earn cash back, statement credits, travel points, and other membership rewards you can redeem for business travel, equipment, or even employee rewards
• Building business credit: Responsible card usage helps establish a positive business credit score, which is key to securing loans, better interest rates, and higher credit limits​​
• Improved cash flow: Paying for large purchases over time allows for better financial planning without impacting your immediate cash flow
• Simplified business expense tracking: As long as you only use your business credit card for business expenses, your card statements will provide a clear overview of your business spending, facilitating bookkeeping and tax preparation
• Fraud protection: Many cards offer built-in fraud protection, safeguarding your business from unauthorized transactions

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Some disadvantages of using a business credit card include:

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• Annual fees: Some cards carry annual fees, so consider whether the membership rewards and benefits outweigh the cost
• High interest rates: Carrying a balance or incurring late fees can lead to higher interest rate charges, significantly increasing costs
• Temptations to overspend: Easy access to credit can lead to overspending, so responsible budgeting is crucial
• Potential impact on personal credit: Some business cards link to personal credit, so mismanagement can hurt both your personal and business credit score

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Corporate credit cards are an alternative to traditional credit cards that offer additional benefits, such as higher spending limits, expense tracking tools, and employee card management for larger businesses. They're the only type of card that uses an EIN (employee identification number) instead of your personal credit report to determine creditworthiness. However, you’ll have to meet certain revenue requirements to qualify.

Level up your business credit with Ramp

At Ramp, we understand the importance of building business credit and managing expenses. That's why we designed an all-in-one corporate card and expense management platform. Any US-based registered business with at least $50,000 in a business bank account is eligible, and we have no spending requirements.

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Our corporate card is powered by an intuitive platform featuring business expense management software. In addition to helping you keep track of your spending, we also help your business save an average of 5%. That's because you'll spend less time and money keeping up with various aspects of your business, so you can devote resources to more critical tasks.

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Consider Ramp’s corporate card to manage your finances effectively and save more for your business.