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Your Business Credit

Should I wait until my business is more established to get a credit card?

If your personal credit is strong and you have a business bank account, there’s no reason to delay getting a business credit card

Summary

If your personal credit is strong and you have at least a year’s history of using credit, there is no reason to delay your application for a business credit card beyond the point where you have opened a business bank account. Just be sure you can personally pay back any debt you incur.

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Dear Your Business Credit,

Hello! I just got my business formally set up (have been operating as a sole proprietor for years). My personal credit should be good enough to get some of the business credit cards I’m thinking about applying for, but should I wait to apply for a business credit card until my LLC has more cash flow and history associated with it? – Alex

Dear Alex,

It’s a great idea to start building up a credit history on a separate business credit card. It will bring better financial organization to your business to keep all charges on one or two cards, instead of mixing them into whatever personal cards you now have.

It sounds like you have formed an LLC. That’s a great first step. I would recommend that before you apply for business credit, you also set up a separate business checking account at a bank, to further establish your business as a separate financial entity.

Check out all the answers from our credit card experts.

Ask Elaine a question.

Opening a business bank account will give lenders confidence that your business is here to stay. Managing that bank account well – by avoiding overdrafts and not bouncing checks – can also contribute positively to your business’s credit profile.

If your personal credit is strong and you have at least a year’s history of using credit, there is no reason to delay your application for a business credit card beyond the point where you have opened a business bank account.  In fact, your banker is likely to invite you to apply for business credit when you open the account.

Although business credit cards offer higher credit limits than personal cards do, it’s possible that the card company will start you out with a relatively small credit limit to make sure you use your business credit wisely. You may need to open two cards from separate issuers if your credit limit is low, so you have enough available credit.

Once you get a card, use it carefully. Pay the balance on time every month and try not to use more than 50% of your available credit, so you do not have high credit utilization for at least six months. That will give the card issuer confidence that you can handle credit responsibly, in the event you want to ask for a higher credit limit later.

See related:  How business owners chose their credit cards

Take advantage of business card rewards

Don’t forget to look into any rewards points and cash back programs your business credit card offers. Many entrepreneurs use credit card rewards and cash back to pay for needed purchases in their businesses, stretching their cash.

Pay attention to the types of purchases they reward, as well. If you do a lot of flying, you’ll want a card that gives generous rewards for air travel. For someone who doesn’t travel much but purchases a lot of office supplies, a card that offers great rewards for purchases at office supply stores would be a better bet.

Don’t charge more than you can personally pay back

One thing to keep in mind is that even if you take out the card in the name of the LLC, you will still personally be on the hook for paying back any money you borrow – even if the business fails or closes.

Most small business credit cards either require the business owner to personally guarantee the debt or have joint and several liability, where the owner shares responsibility with the business entity. In either case, the lender can go after you, the owner, to pay back the debt.

Entrepreneurs’ greatest strength is their optimism, but never let the excitement about your business lead you to borrow more money on your business cards than you can personally pay back with the money you have now.

That way, you can move forward with the peace of mind that you’ll never have crushing debt if something goes wrong in your business. Good luck!

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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Credit Card Rate Report Updated: November 25th, 2020
Business
13.91%
Airline
15.50%
Cash Back
15.85%
Reward
15.75%
Student
16.12%

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