Using credit cards can help your business operate more efficiently. That assumes, of course, that you use them responsibly. Whether you use credit cards responsibly or not, though, there are some hidden dangers that you should consider before you start relying on a credit card to keep your business moving forward.
Some Credit Cards Have Hidden Fees
In 2005, credit cardholders paid $12 billion in fees. Most of the fees associated with credit cards come from late or missed payments. If you accidentally miss a payment by even one day, the credit card company can charge your business $25, $40, or even $50. If you regularly forget to pay your bill on time, then your business is potentially losing hundreds of dollars every year.
Some credit card companies will also charge an inactivity fee. If you don’t use your card at least once a month, then they’ll charge you a couple of dollars. Sure, the credit card company wants to make money and motivate people to use their cards more, but there are plenty of offers that won’t force your business to pay such a trifling fee.
Late Payments Have a Less Obvious Penalty
Making late payments has a less obvious penalty: it raises your interest rate. When your business makes late payments, the credit card company gets to assume you are a higher risk, and that means they can charge you a higher rate to protect themselves. Suddenly, you could find that your 18 percent card jumps up to 24 percent. That will make carrying a balance much more expensive.
Businesses Are Not Protected by the CARD Act
You might have heard that consumers now have considerably more protection from predatory credit card companies thanks to the Credit Card Accountability, Responsibility, and Disclosure Act. Well, you’re right. Unfortunately, your business does not get the same protection. That means credit card companies can continue using the old dirty tricks with you.
For example, let’s say you accidentally exceed your business credit card’s maximum limit. The credit card company will charge you for that, and it usually costs about $39. According to the CARD Act, that’s where the penalties end. Since businesses aren’t protected, though, your credit card company can continue charging you that $39 fee for every month that your balance remains too high.
Given those extra fees and your now incredibly high interest rate, it’s pretty likely that it will take some time for you to bring the credit card debt down. That means you could face several months of fees just because you made one mistake.
Credit cards are convenient, but you have to use them wisely, especially when you use them for your business. Always investigate card offers to find hidden fees. Also, stay on top of your debt. Pay off the balance every month if possible. Your business doesn’t get much protection, so you have to make sure the credit card company never has a chance to rip you off.
[Photo Credit: Best Finance Network]