⚡ Get All Content for 20% Off ⚡

7 Credit-Card Blunders That Could Hurt Any Small Business Credit-card debt can be tempting for startups seeking a smooth launch. Consider these tips for avoiding costly mistakes.

By Odysseas Papadimitriou

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

Shutterstock

Making it as a small-business owner is tough. The oft-repeated survival statistics: Only about a third of startups survive to celebrate their 10th anniversary, according to U.S. Census Bureau and Labor Department data, and only a quarter last until their 15th.

There are many ways to increase your company's survival odds, but one of the easiest is to control your use of credit-card debt. Too often, entrepreneurs don't make the best use of their accounts and end up hurting their businesses. Here are seven of the most common credit-card slipups to avoid.

1. Ignoring your personal credit standing: Credit-card issuers pull personal credit reports when making business-card approval decisions because to them, a small business is its owner. So, it's crucial to try to maximize your personal credit score before applying for a business card. Start by visiting annualcreditreport.com and ordering a free copy of your major credit reports (Experian, Equifax and TransUnion). You can check for inaccuracies that could be dragging down your credit standing, as well as get a sense of whether there is any negative information that you will need to devalue to improve your score. The most efficient way to do so is to get a new personal credit card and either lock it away unused or pay your bill on time each month. This will relay positive information to your credit files on a monthly basis.

Related: 5 Questions You Must Ask Your Credit-Card Processor

2. Leveraging credit too early: The numbers speak for themselves when it comes to the dangers of relying on a credit card to power a company through its infancy: For every $1,000 in credit-card debt that a small business takes on, its chances of long-term survival fall by more than 2 percent, according to a study from the Ewing Marion Kauffman Foundation. If you rack up a huge balance from the get-go, you will likely waste money on interest payments and won't be able to reinvest in your company as freely as you might otherwise.

3. Being wed to only a small-business card: Most people assume business credit cards are the plastic of choice for small-business owners, but for purchases you won't be able to pay off within a single billing period, you actually could be better off using a personal credit card. Credit-card issuers are banned from increasing interest rates on personal-card balances in the absence of 60 days' payment delinquency, but this rule doesn't apply to business cards. So, you could face unexpected higher interest charges if you carry a balance on a business card, potentially disrupting your cash flow and strategic plans. Using a personal card won't affect your liability; you'll be personally liable for your small-business spending no matter what type of card you use.

Related: The Biggest Credit Card Mistake Entrepreneurs Make -- and How to Avoid It

4. Overlooking rewards: Small-business credit cards have long offered unparalleled rewards on business-related expenses, and now, credit-card companies also are offering enticing initial reward bonuses on both business and personal cards to people with excellent credit ratings. You can garner hundreds of dollars in free cash or points, which can be used to score a free flight to visit an important client or help pay for a marketing campaign.

5. Paying interest: You can avoid credit-card interest payments by taking advantage of introductory zero-percent rates on both purchases and balance transfers. For example, the Citi Diamond Preferred Card offers zero percent on new purchases for 18 months, while the Slate Card from Chase offers zero percent on balance transfers for 15 months and doesn't charge a balance transfer fee. If you currently have a $5,000 balance with a 15 percent interest rate and want to become debt free in 15 months, the Slate Card would save you $518 in interest fees and help you pay down the debt one month faster.

6. Not segmenting transactions: The rewards and low interest rates available today obviously provide value, but you won't be able to take advantage of both using a single credit card. That's why you should follow the "island approach" and segment your transaction types on different credit cards. For example, you can use a business-rewards credit card for everyday expenses and a zero-interest personal card for funding. This will enable you to reap the benefits of a business card but enjoy the debt stability of a personal card.

7. Failing to safeguard against fraud: The best way to ward off fraud is to exercise common sense. Avoid leaving important financial documents where employees can see them; it's possible they could apply for financial accounts under your name or your company's name. If you regularly deal with clients or vendors over the phone or online, always be careful when exchanging financial information. And keep an eye out for credit-card transactions for unusual amounts, which could be a sign of unauthorized account access.

Related: 3 Questions You Must Ask Before Securing a Small-Business Credit Card

Odysseas Papadimitriou is the founder and CEO of Evolution Finance, the parent of CardHub.com, a gift-card exchange and credit- and prepaid-card comparison service, and WalletHub.com, a social network for personal finance offering comparisons, ratings and reviews of financial products and services.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Side Hustle

The Remote Side Hustle a 43-Year-Old Musician Works on for 1 Hour a Day Earns Nearly $3,000 a Month: 'All From the Comfort of Home'

Sam Ziegler wanted to supplement his income as a professional drummer — then his tech skills and desire to help people came together.

Business News

Costco CFO Reveals Uncertain Fate of $1.50 Hot Dog and Soda Combo

CFO Richard Galanti reveals that the price will stay the same — but only "for a while."

Business News

The Most Unexpectedly Popular Side Hustle of the Decade Has Low Startup Costs and High Markups

A new report shows that vending machines are a popular investment — and the industry is set to grow up to $3 billion by 2031.

Marketing

Ever Wonder Why Certain Websites Rank Higher Than Yours? This SEO Expert Reveals The Secret to Dominating Search Results

It's often the smart use of SEO, now supercharged with AI, particularly in keyword optimization.

Business News

AI Is Impacting Jobs. Here Are the Gigs Affected the Most, According to an Analysis of 5 Million Upwork Postings

The researcher said in the report that freelance jobs were analyzed first because that market will likely see AI's immediate impact.

Leadership

Former Interrogator Shares 5 Behaviors Liars Exhibit and How to Handle Them

Five deceptive behaviors to look for and how to respond to those behaviors when you encounter them.