Credit card products, features, benefits, and offers discussed in this article were available at the time this article was published. Since product features are subject to change by the card issuer, not all statements made in this article may apply after the time of this publication. I have not been compensated by anyone for any products I mentioned in this article.
M y parents taught me to stay away from credit cards from a young age before I even had an ATM card. My father was very responsible with his credit, only using credit when absolutely necessary. He kept one major credit card and one or two store cards, one of them being a Macy’s store card. He rarely used his cards, opting instead to pay with cash for everything. He didn’t do this because he was wealthy. We lived a modest lifestyle. My father was the only full-time source of income and his salary was decent for a lower-middle class family at that time. He just believed you should never pay with a credit card when you can pay with cash. This way you only spend what you have. I firmly believe this today, though it was a costly lesson for me. I went through my short stint with credit debt and charge-offs. It’s not that I didn’t manage money very well; it’s just that I was an impulsive buyer. Though I would go through my moments of buyer’s remorse, I would never get around to returning any of the junk I bought over the years. Add to this the interest I paid on maxed out credit cards and, well, you can see why it was a costly lesson. Credit cards are EVIL!, or so I was taught by my parents, and from my own early life experience.
Same holds true for businesses, especially start-ups. No business should use credit cards to fund operating losses. However, I will give you 10 reasons why, for specific scenarios, credit cards should be used and I will explain my reason to support this. Credit cards, when used responsibly under certain circumstances, can be a perfectly good payment option.
Before I go any further, I want to apologize, in advance, to some of you who may be MBAs and experienced business owners. I will be explaining many things in this article that you may already know. I myself have an MBA and I am the CEO of a large organization that is highly regulated by federal and state government agencies. In all my years in management, using complex formulas to predict the future value of money, no one ever pulled me aside to make me aware of simple hacks to maximize cash flow and margins.
I have learned to apply many different strategies over the years on one basic principle, to find measurable added value and return for your hard-earned money, in many cases for free.
This article will list 10 reasons why credit cards should be used in your business operations, and in your daily life. Before I do that, let’s go over the different types of credit cards options that are available. Not all cards are created equally.
What are the different types of credit cards?
Corporate cards: These are cards for large companies, typically publicly traded and nonprofit companies that require third-party financial oversight that include periodic independent financial audits. There are two types of corporate cards:
- Individual liability: Each authorized user undergoes a soft credit pull, meaning their personal credit is reviewed for creditworthiness and the account may be reported to the credit bureau. The bill must be paid by the individual by the due date before the card can be used again. In this case, the authorized user can pay the bill for their account directly and get reimbursed by the corporation, or wait for the bill to be paid by the corporation before they can use the card the following month. In either case, the creditor does not hold the individual liable for the charges. The corporation is still liable for any charges made by authorized users.
- Corporate liability: The authorized user is not required to undergo a soft credit pull and their authorized user. The corporation must pay the bill for all the authorized cards by the due date, not the individual cardholder.
Business cards: These cards are good for small businesses and sole proprietors. Any small business owner can apply for a business card as long as the small business has an Employer Identification Number or EIN. The business is liable for charges, though the authorized users may also be liable for charges on their cards.
Personal cards: These cards are good for sole proprietors where the small business owners make their own purchases for their business. These cards are tied to the primary cardholder’s social security number. The card issuer reports the credit inquiry, monthly balance and payment history on the primary cardholder’s credit report. It is also reported on the authorized user’s credit report, but the authorized user is not personally responsible for any charges made on the account.
Annual Fees: Many cards charge an annual fee. Typically, these fees are charged to offset the cost associated with the special features and benefits offered with the card. Many premium cards offer “high end” perks, but they also come with significantly higher annual fees. The best cards are those with no annual fee.
Now that we have gone over the different types of cards that are out there, here are the 10 reasons you should be using credit cards on the daily:
1. Buying Power
Capital means liquid money. The more money accessible to you for spending, the greater the buying power you have. There are many reasons for you to have accessible buying power. For one thing, it is a form of capital funding. Sometimes we need capital funding to solve short-term cash flow issues. We call this working capital. Sometimes we need capital funding to start a new project or expand the existing business. We call this investment capital. We need working capital to run our companies. We don’t necessarily need investment capital to run our companies because investment money is money we have taken out of daily circulation. We store this money in CDs or some other form of short-term or long-term investment. Working capital is liquid and Investment Capital is liquidable. Either way, capital allows businesses to prepare for opportunities and prepare against risks. Working capital is used to run a business. Having a lot of working capital doesn’t necessarily mean your business is thriving. On the other hand, having little working capital doesn’t mean your business isn’t thriving. You see, working capital is not cash, but rather the amount of buying power that you have. If you look at working capital in terms of buying power, it is calculated as your cash and cash equivalent, less your current liabilities. We call this the quick ratio. Since only the portion of the revolving debt that you borrow from is recorded in your current liabilities, your actual buying power is greater than what you have recorded on the books. What’s even better is that there is no lien on company assets as is the case with secured loans and secured lines of credit, whereby you are actually borrowing money against your own equity, held by the bank in the form of deposits. The more unused credit you have at your disposal the greater your buying power and since credit cards are unsecured forms of credit, you are literally borrowing against someone else’s money for free, so long as you pay the balance before interest is applied. The best way to leverage this kind of buying power is through introductory offers.
2. Introductory 0% APR
Here is a great opportunity to float payables with absolutely no interest to pay back, so long as the complete balance is paid before the end of the introductory 0% offer period ends. The only catch is that if you do not pay the bill completely and leave a $0 balance, the interest for the entire year on all of your purchases will be applied, typically at a high rate, which can be in the low 20s. It’s a fantastic offer but only if you have the means to repay everything before the 0% APR period expires. There are many credit cards that offer introductory 0% APR for up to 18 months for new purchases and, in some cases, for balance transfers.
Lines of credit, or LOCs, and credit cards offer business owners buying power, but there are several distinctions between the two. The first, which I briefly mentioned above, is asset security. There are many others, which is why one cannot replace the other. For the most part, credit cards are best used for purchases and LOCs are best used for cash advances. I have listed all of the reasons for best use for each below:
Credit Cards are better for Purchases and Vendor Invoice Payments:
a. Interest-free grace period up to 21 days after the statement closing date.
b. Reward points and cash back on all purchases.
c. Extended warranties and price protection.
d. Payment flexibility. Make any payments above the minimum payment.
e. Multiple authorized users with different credit limits under one account.
f. Most credit cards are unsecured, unlike most Lines of Credit.
g. Fraud protection.
h. Introductory 0% APR on purchases and balance transfers for up to 18 months!
Lines of Credit are better for Cash Advances and Overdraft Protection
a. Higher monthly spending limits because LOCs are secured or backed by your deposits.
b. Lower interest rates, unlike credit cards which typically have high-interest rates.
c. Draw-down (take a cash advance) on your LOC cash without the high fees associated with credit card cash advances.
d. Draw-down on your LOC up to the limit of your total monthly available credit, unlike credit cards that only allow a cash advance no more than 10-20% of your total monthly available credit limit depending on the card.
e. Convenient draw from the LOC and transfer to money directly to operating and payroll accounts to cover accounts against potential overdraft. Payroll, in particular, must have sufficient funds to cover employee paychecks and tax impounds.
Since credit cards offer unsecured interest-free buying power, credit cards are the clear winner for short-term capital funding to make purchases.
3. Extend Short-Term Financing
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The obvious benefit of using credit cards is its financing flexibility. Interest expense from financing, is an expensive cost center for any size company. The trick is to obtain the financing for free. If you can use a credit card to do this, it should be your first option. The idea here is to make borrowed money work for you interest-free and then repaying it before interest is applied.
Cash flow is calculated as either a cash in or a cash out. When cash comes in, it’s a cash inflow. When cash goes out, it’s a cash outflow. Any time you delay paying your bills, or float your payables, it is a “cash inflow” because it is money in your pocket that should not be in your pocket, because it is owed to, and thus, belongs someone else. You have more cash, even though your debt increases. Inversely, paying your debt is a “cash-outflow.” Though you reduced your debt, you also reduced your available cash. The more you float payables from vendors who do not charge late fees for bills that are past due, the more cash on hand you have at your disposal for use. It’s basically free financing.
The problem with this model is that you can only float your payables so much before you risk damaging your vendor relationship. Vendor performance, pricing and reaction time vary from customer to customer. This depends greatly on several key factors such as percent of sales, pricing, relationship history, and payment turnaround, among other factors. Floating your payables can identify you to your vendors as a slow payer. This impacts your ability to negotiate pricing and payment terms down the road. It also affects the reaction time when you reach out to the vendor. You will not be a priority if you have outstanding invoices. Calls to customer support to request assistance or clarification or to address concerns and issues will only result in transfers to the collections department. Vendors don’t like to chase down accounts for outstanding invoices. Furthermore, slow payers are typically not preferred accounts so customer service, price negotiations, delivery time, and turnaround time will eventually suffer.
There are also financial reporting impacts of using this method. A quick look at the balance sheet would reveal slow payment when your current liabilities increase from one year to the next. However, since you are holding on to cash longer, your current assets go up as well. This keeps the debt ratio relatively the same. Delaying payments using LOCs doesn’t work because you are paying the interest. So even if your total debt to asset ratio isn’t affected, interest expense affects the income statement. When you eventually pay down the short-term debt, your current liabilities will go down, but so will your current assets, and any interest you incurred during this period is recorded as an expense and will reduce your bottom line.
So how can you float your aged invoices to create a cash-inflow, that will not create interest expense? Credit cards. Though it seems like common sense, using credit cards to pay invoices essentially delays payment indirectly. Basically, you are using the short interest-free grace period that you only get from credit cards extend payment. Here is an example:
Say you ordered office supplies from WB Mason and the payment terms are net 30 from the date of invoice. The order was placed on September 1st. The supplies were delivered during the following scheduled shipment on September 3rd. The invoice is dated as of the date of shipment. The bill is mailed out on October 1st and is received by accounts payable on October 3rd. The bill includes multiple invoices including the invoice for the September 1st order. The due date for the bill is October 15th. Many times the invoice also includes a grace period before late fees are applied that can extend it an additional two weeks to October 30th, but for this article, we will stick to the 15th. Instead of issuing a check, your AP department pays the bill online using a credit card. The invoice is marked as paid and a new invoice is generated for the credit card charge on the 15th. Any charges incurred during the statement period go onto the next billing statement. If the billing cycle ended the day before you used the credit card to pay the WB Mason bill, you have the entire 30-day billing cycle before the next statement is issued. This is why when the bill gets paid with the credit card is very important and should also be factored into your strategy. For this example, we will use this best-case scenario. The credit card statement cycle ended on the 14th so the new charge made on October 15th will not show up on your next statement. The next statement is issued on October 19th and is mailed out. Your AP department receives the statement on October 23. There is a payment due date grace period of 21 days from the date the bill is mailed out or delivered, depending on the terms and conditions (you should be familiar with this for each credit card issuer). For this example, we will use the mail date of October 19. The payment due date is November 9th. However, remember that this statement doesn’t include the charge, because it was made the day after the end of that billing cycle. Since the cycle is static, for the most part, you can count on the statement closing each month on the 14th and the statement being mailed out to you on or about the 19th of the month. You can expect to receive the statement sometime between the 20th to the 23rd and your statement will typically be due 21 days from the date the statement was issued (either mailed out or received depending on the terms and conditions, typically the reason for the 21 day grace period). Hence you will have a due date of November 9th or 10th every month. So this charge made on October 15th will not show up on your credit card statement until late November and you have until December 9th or 10th to pay the bill in full (your accounting department can schedule a payment for a future date which is particularly useful when the 9th or 10th falls on a Saturday or Sunday). Using this method extends a net 30 payment to 90+ days and no one was paid late and no late fees or finance charges were incurred. If you were able to negotiate net 60 terms for payment with vendors as part of your original contract agreement, you can add another 30 days to this timeline. You basically don’t have to pay for a service rendered or product delivered for about 120 days from the date of service or product delivery-That’s 4 MONTHS! What you are essentially doing is increasing your current liabilities and revolving the debt using credit cards.
Unlike LOCs which charge you interest from the time you draw down on the line, credit cards offer interest-free financing grace periods for you to repay the balance before interest is charged. When it comes to extended, free financing, credit cards are again the clear winner.
4. Track and Control Spending
Most credit cards out there don’t typically offer robust expense tracking features. Capital One Spark cards, offer some spend tracking tools. American Express is unique in that many of its products offer business intelligence or BI tools for spend reports, though none more so than the American Express Corporate cards. This is one huge benefit offered by their corporate cards. The expense tracking tools are robust and if you use their corporate cards for most of your daily spends, it can make a world of difference in managing your spending across departments. The spend by category reports are rich with detail and can be used to create budgets. American Express Corporate accounts offer SAP Concur integration software that not only offers extensive expense analytic tools but also allows you to export, and in many cases integrate, the information into your accounting software. It is all included as part of your corporate card benefits. You can have as many authorized users as you wish because the corporation is on the hook for the entire bill. This is great news for employees who do not wish to be liable for charges, though its bad for the corporation if the corporation gets a bill for charges and the employee leaves the company. The employee shares zero liability.
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The American Express business cards also offer useful spend tracking tools which are extremely useful for small businesses, though not as robust as Concur.
Brex is a new corporate card offered through Sutton Bank. Brex was founded by a couple of 22-year-old students from Stanford, who have both since dropped out to run Brex full-time. Brex is targeting the startup entrepreneurs with flashy technology that will not only help startups manage their money, vendor accounts and track spending, but also offers technology to capture receipts. The brilliance behind Brex is its expense AI tracking technology that uses algorithms to interpret spending behavior. It helps businesses manage their spending more efficiently. Much like Concur, it offers integration capability for popular accounting software like NetSuite, Xero, Expensify and QuickBooks, with many more integrations to come. Unlike the Amex Corporate Platinum card’s steep $450 annual fee and $300 additional authorized user fee, Brex users are only charged $5 a month for each additional card. Brex’s AI software determines if you are eligible and how much credit they will give you. You have to have a minimum of $50k in your small business account to be eligible and you will be required to provide your bank account login information. Since Brex is a charge card, the balance must also be paid in full each billing cycle.
Today’s credit cards allow for the convenience and flexibility to make purchases without the card present. Charges are available in real-time, through email and text alerts. You can set spending limits by individual cardholders. This not only provides more convenient monitoring but also allows you to increase and decrease limits individually as often as you see fit, and can be configured easily online. Authorized users can view their statements and activities online as well and can also receive alerts and can freeze their cards if lost. The ability to monitor use and control access across employees everywhere in the company gives you the tools needed to monitor and control use and spending. This is a tremendous advantage to using credit cards for daily spending, especially if you have a sales team and customer retention team that are required to spend money on client relations. Again, this is only unique to credit cards.
5. Better Relationship with Vendors
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Though in the world of business, most recurring transactions are paid through check disbursements, like rents and mortgages, many recurring transactions can be put on the credit card. Most vendors and nearly all merchants accept most major credit cards. Many vendors actually prefer payment by credit card and will go so far as to include discounts if you set up automatic payments through their payment portal. They prefer to have automatically scheduled payments because this reduces the cost of financing receivables and the cost of chasing down open invoices. Most vendors prefer paying the merchant fees to guarantee on-time payments.
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Fraud Protection: Credit cards offer another unique feature designed to protect consumers. Fraud protection is one of the main benefits of carrying and using your credit card. Many people who used to carry cash and debit cards are migrating to credit cards because the credit card companies, not the consumer, is on the hook for fraudulent charges.
Price Guarantees: Citibank offers price protection for many of their products. Applications like Sift and Earny track your purchases made with credit cards that offer price protection. You just link the credit cards that offer price protection and your email. Then you use those credit cards for purchases and the applications monitor price drops for up to 90 days. If the price drops, the apps will notify the credit card issuer and will provide all the necessary filings to complete the claim. There are some limits to how much protection you get per purchase and in total, and for how long the protection is good, as well as other clauses. All in all, this is a really good feature that offers you the opportunity to claim unexpected found money.
Extended Warranties: There are some cards that offer extended warranty protection as well. Citibank offers generous, extended warranty protection across many of their credit card products. The Citi Double Cash, AAdvantage Platinum, AAdvantage Executive, ThankYou Premier, and ThankYou Prestige are some of the cards in Citi’s line up that offer extended warranty protection. American Express products offer less generous warranty protection, but their protection includes coverage for wear and tear in some instances. Chase slashed most of its extended warranty coverage across all of its products as of August 2018. Using credit cards that offer extended warranty protection is a good way to add protection to small and large purchases, thus avoiding the need to purchase extended warranties. This convenience can save you the need to purchase extended warranties from the merchant, saving you anywhere from $49 to $149.
Insurance: Some credit card issuers offer insurance for specific products. For example, some credit cards offer insurance to cover the loss, theft, and damage to cell phones. All of the credit cards that offer this type of protection also set limits on the number of claims, the maximum cost covered for each claim and the maximum dollar amount for all claims within a 12-month period. Though they are similar, policies on coverage eligibility do vary. I placed a link for details regarding this in this paragraph. Many premium cards offer travel insurance. The type of travel insurance and coverage varies by the card issuer. Some offer comprehensive primary and secondary coverage for rental cars. Other forms of travel insurance include flight delays, baggage loss/delay, trip cancellation, and illness/emergency medical attention and medical evacuation. I placed links in this paragraph so you can learn more about this topic.
7. Reward Points and Cash Back on Category Spend
Reward Points: Each credit card product line’s reward program is unique. Some programs allow transfer to other programs. The three most notable programs with the most partner relationships are the American Express Membership Rewards (MR) Program, Chase Ultimate Rewards (UR) Program, and the Citibank ThankYou (TY) Rewards Program. All three are points programs that allow you to transfer points to airline and hotel partners for miles and stays. What makes these programs so attractive though is the value the points have when you use them to book flights through the flights directly through the programs. The value can range from 1.2 cents to 2.4 cents per dollar. There are websites that actually discuss how to get the most value through transfer partners. The Points Guy and One Mile at a Time are just two of the many popular sites people go to in order to research the best way to redeem points and miles. All three programs also allow you to redeem points for statement credit and for online shopping with partner online sites at a rate of 1 penny per point.
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- American Express Membership Rewards (MR): The MR program is flexible in that you can use the points to transfer directly to airline and hotel partners with a 1:1 transfer rate, though you can transfer through most airlines through OneWorld and SkyTeam using American Airlines and Delta Airlines with good conversion rates. The Platinum Cards offer 5X the reward earnings for airfare purchases made directly from the airline, and hotels booked directly from the AmexTravel portal. The Gold Cards now offer 4X at US restaurants and US supermarkets
- Chase Ultimate Rewards (UR): The UR program is the most robust in that you can transfer to most major airlines through airlines affiliated with OneWorld and StarAlliance, like British Airways and United Airlines, with excellent transfer rates, valued slightly higher than MR conversion rates in most cases. The Sapphire Reserve Card offers 3X the reward earnings for all forms of dining (take-out included) and all forms of travel expense, including tolls, parking lots, public transportation, taxis, and railways. Gas, however, is excluded. Freedom offers 5X the reward earnings on category spending based on the calendar. You also have to go through the trouble of activating the bonus category every quarter for the bonus 5X to be applied.
- Citi ThankYou Rewards (TY): The TY program is arguably the weakest of the three. Not so much in terms of value, but more in terms of flexibility. For example, if you cancel a ThankYou card, the points you earned on the card you canceled will expire, even if you have another ThankYou card. This is unique to Citi’s TY program. Their list of rewards partners does include some exclusive airlines, but there is a smaller selection and you don’t have the vast network that you will get from MR and UR. The ThankYou Premier Card offers 3X the rewards earnings on dining and gas, and 2X the reward earnings on entertainment which covers everything from movies and concerts to amusement parks. The new ThankYou Prestige Card scheduled to be released in January 2019 will look to match the Platinum card and beat the Gold card with 5X reward earnings on airfare and dining.
- Travel Rewards: Many credit cards offer travel points that can be used for statement credit on travel charges. Barclays, Capital One and Discover Card reimburse you for travel charges in this way.
- Cash rewards: These programs are more popular for people who don’t travel much. Cash rewards programs don’t offer the same valuation as travel points do, but they offer you something much much better, cash back. Citibank Double Cash, Chase Ink Business Cash, Bank of America Cash Rewards, Capital One Venture One and American Express Blue Cash Everyday Card are great cards that offer great returns on category and everyday spending. The Double Cash card is my personal favorite because it offers 2% total cash back on all purchases (1% when you make the purchase + 1% when you pay the bill). The drawback, which is huge, is that there is no business version of this card, as some of the other cards I mentioned here. Thankfully, American Express came up with a great cash back option for small businesses. The American Express SimplyCash Plus credit card offers 5% cash back for office supplies, 3% on wireless cell phone carrier service, and 3% on one additional category of choice, for the first $50,000 you spend in a calendar year. The categories you can select from include restaurants, gas, and shipping. If you’d rather choose the categories you would like to earn cash rewards for then you want to take a closer look at Amex Business Gold.
If you want to maximize return on your spend, then you want to take a closer look at stacking a combination of cards throughout the year. For example, stacking your Chase business cards: Use your Chase Ink Business Cash card, with at 5X earning on Office Supplies, Internet, cable, cellphone/ telecommunications until you meet the $25k threshold for the year. Then you can switch to American Express SimplyCash Business Credit Card to continue earning 5X on office supplies and cell phone/telecommunications until you reach $150k spend threshold. Then you use your Chase Ink Business Preferred card for 3X rewards on for Internet and cell phone bills up to $150k spend threshold, in that order. Stacking Amex Gold Business cards with Chase Ink cards and Bank of America Business Cash Rewards cards allows you to continue earning on many of the business expense categories you already have to pay for without worrying about the thresholds. I have provided a link here for a complete list of Business credit cards you can combine to maximize your rewards based on your spend habits.
Cards like the Citi Double Cash Back card, Chase Unlimited and Ink Cash Unlimited, and Capital One Venture One offer flat cash rewards on all spending. They range from 1.5% to 2%. These cards are great for rounding up rewards on all other non-category spends.
Cards with category spends of 2% or more also offer 1% cash or 1 point per dollar spent for all other non-category purchases. So even if you don’t spend on any categories or the majority of your spend is on non-category purchases, you can still, at the very least, earning 1% cash back or 1 point for every dollar spent. That’s still a great deal.
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If you add up all of the expenses you could possibly pay using a rewards card, you can rack up quite a bit in cash back which you can use to lower your statement balance or increase your purchasing power. It’s found money. Depending on the size of your business, any combination of cards, if used for every transaction where a card can be used, can add up to thousands of dollars a month. One office supply purchase from Staples alone can average in the thousands.
Rewards essentially reduce your operating expenses by discounting the purchases you make in the form of statement credit and future purchase credit. Rewards programs provide an excellent return for small businesses. Coupled with free financing, the return you get from rewards really demonstrates how you can improve your bottom line.
Most business owners may not appreciate or even know about all of the perks that are often buried in the fine print of credit cards they currently carry in their wallets. These are often used to attract new applicants and then slip into the abyss of the terms and condition statements when they receive the card. Perks are benefits that come with just being a cardholder regardless of whether or not you use the card. This is why perks often go forgotten. The perks vary, typically depending on how high your annual fee is. Since premium cards cater to clients who value service and special treatment, this is where premium cards set themselves apart from the rest.
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For the discerning jet-setting business traveler, there is only one card that stands above the rest, the American Express Corporate and Business Platinum Cards. I will only mention the perks that both cards share, though individually, they may have additional benefits, in no particular order:
- Lounge Access: If you fly a lot with layovers, there is nothing more pleasing than sitting in a beautiful lounge sipping on ice cold beer or a glass of wine while munching on a delicately curated arrangement of imported cheeses and Michelin-quality food to pick on while you wait for your flight. Lounges include the Admirals Club lounges, Priority Pass Lounges (airline lounges that participate in the Priority Pass program) and of course, the coveted American Express Centurion Lounges. Many of these lounges include private changing rooms and showers, and of course, complimentary wi-fi.
- TSA Pre-Check/Global Entry/Clear Application Credit: Most premium cards offer full application fee reimbursement for TSA Pre-Check or Global Entry once, every 5 years. For an $85 application fee, Transportation Security Administration (TSA) Pre-Check allows you to move more quickly through airport security and you don’t have to take off your shoes. For a $100 application fee, Global Entry gets you through customs when you’re returning from abroad and you receive all of the privileges of TSA Pre-Check. Some would argue, and I happen to agree, that Mobile Passport is probably better than Global Entry, and it’s completely free. Clear is a private company that verifies that you are who you are using bio-metrics at kiosks. Clear allows you to bypass the line to check your identification. This service comes with a steep cost of $179 annually. Delta Skymiles members receive a $100 discount for Clear membership, which must be renewed annually.
- Credit for Airline Travel Related Expenses: This is particularly useful when you have to pay for baggage check-in. Most airlines charge for the second bag checked, though many are now charging for the first bag check. Many premium credit cards offer annual travel credits of up to $250 depending on the premium card you use that you can use towards in-flight purchases so long as the purchases are made through the airline and not a third party. Some airline co-branded credit cards also offer in-flight discounts on in-flight purchases as well. There are limits to this, however. For example, American Express Platinum card offers $200 and $100 in credits per year for flight incidentals, but you have to choose the carrier at the beginning of the calendar year and you cannot switch carriers once you do. Some data points suggest that customer service representatives have obliged the airline change request so long as you have not used any of the travel credits yet for that year. Gift cards are not technically included, but some data points from bloggers suggest it can be done. I don’t suggest it, but that’s totally up to you. Chase Sapphire Reserve offers a very generous $300 annual credit for any travel expenses you make. The credits occur automatically until you reach the $300 in credits applied to your account. It resets every January and since it offsets the cost of most travel expenses, one can argue that this reduces the $450 annual fee to $150.
- Access to Special Events: Many American Express and Chase premium cards offer invitations to special events curated by their respective programs. In addition to exclusive “Invitation Only” events offered by the Amex Platinum card, many Amex card products also offer access to pre-sale concert tickets. Most Citibank cards offer Citi Pass which does the same thing.
- Customer Service: Most premium cards offer customer service that is above the rest and personalized. Chase Sapphire Reserve cardholders can expect almost no wait time and the calls are always answered by a live representative 24-hours a day. Amex Platinum cardmembers still have to experience an automated representative, but this is easily bypassed by requesting a representative. Wait time is minimal. I personally have never had a bad experience with any of my premium card representatives. They are always patient and give you a genuine impression that they want to help you.
- Concierge Service: This is my favorite reason for having a premium card. It is feature that comes in clutch for those moments when you are trying to impress a potential client. Most premium cards offer some form of concierge service. American Express Centurion “Black” Card, J.P. Morgan Reserve card and Dubai’s First Royale MasterCard offer limitless access to anything you want on tap. Only the ultra-wealthy are eligible to have one of these cards. You having millions in the bank, liquid and in the case of the Amex Black Card you must be invited to apply. For the rest of us willing to pay a high annual fee, one card stands out as the best, the American Express Platinum cards. Other premium cards don’t even come close. Sure they probably won’t be able to travel by motorcycle to get you sand from the dead sea for your kid’s school project in London (this reportedly actually happened), but they can get you tickets to see Hamilton on Broadway this evening, which is a great way to impress a worthy client. I actually called the Amex Platinum concierge services and the agent priced out Hamilton tickets for at the going market resale price for that same evening. She stated that she can get them for me if I wanted. I passed on the offer of course. I wasn’t about to spend $800 per ticket for a Broadway show. It was nice to know I could though.
9. Sign Up Bonus Offers
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So I listed many reasons why you should consider using credit cards to help your business. That’s the easy part. The hard part is finding the right cards to apply for. Credit card companies know this dilemma so they often entice potential applicants with high bonus point offers. This is a great way to get a load of points upfront with minimal spending required. In addition to offering sign up bonuses throughout the year, they occasionally increase the sign-up bonus for a limited time. The trick is knowing when to pull the trigger once you have decided for which card will you apply. Since most cards place some sort of limit on the number of times you can apply to receive a sign-up offer, it makes it more difficult to determine when to apply.
American Express only allows one sign-up bonus for a card for life, even if you canceled that card in the past and want to sign up for it again. You get the bonus only once. Chase allows one sign-up bonus every 24 months for any card you’ve already received before, whether you still have it or not. Citibank is similar to Chase in this regard, but they go a little further in that they disqualify you from receiving a sign-up bonus for 24-months for an entire product line. So if you received a sign-up bonus within the last 24 months for opening a new Citi ThankYou Premier card, you won’t be eligible for a sign-up bonus on any Citi ThankYou products until after 24 months.
The choices are immense but do your research first before you pull the trigger so you can get the maximum sign-up bonus offer. The best suggestion I can offer you is to look at the highest historical offers and if the card is offering a bonus and it is the highest ever offered, go for it. If not, wait a while, the offer will more than likely return. Go for a card that you know hasn’t had increased offers in the past and won’t likely have increased offers in the future. Also, you may want to look at certain card products first, regardless of bonus offers because of limits these card issuers are placing on approvals regardless of creditworthiness. I will explain further in the next section.
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Application Limits: Have you ever heard of the term “Churner” in the credit card world? That’s okay, neither did I until very recently. Churners are a subculture of people whose sole goal is to collect bonus offer points after meeting the minimum spend requirements. To them, bonus points offered for applying for a card are a commodity, not a way to get rewarded for using the credit card they just applied for. Churners perfected the art of earning maximum rewards for little money. They redeem the points and cash and then cancel the cards. Chase took a draconian approach to stop the churner phenomenon. Whereas other card companies took the position to limit how much churners can collect by limiting bonus eligibility, Chase decided to identify churners as serial credit card applicants that cost credit cards millions of dollars each year. Chase decided that anyone who opens more than 5 credit card accounts of any kind from any company, including store credit cards, within a 24-month period will automatically be denied when applying for most of Chase’s credit card products regardless of your credit history or relationship with Chase as a banking customer. The credit card community calls this unwritten policy the “5/24 rule.” Chase representatives are confident that this policy only affects a small number of would-be new customers. They would rather lose a few good potential customers who fall outside the 5/24 rule than allow churners to apply for their products. The best way to navigate through this limitation is to apply for Chase products first, beginning with their business cards. For some reason, data points on the internet claim that Chase does not count business accounts in their 5/24 equation. This is good news for business owners. The downside is that if you have already opened more than 5 new accounts within the last 24 months already, you will be denied from opening a Chase business credit card. Once you have established your lineup of Chase business credit cards, then apply for other business cards. Most new business accounts will not appear on your credit report. Then move on to apply to your favorite Chase personal cards that are affected by the 5/24 rule until you reached 5 new accounts, and then look to apply to other personal cards you really want. I have included a link here to see which Chase cards are affected.
10. Improves Credit History
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Why is having a strong revolving credit history so important for small businesses? Capital funding is the key to successful growth. Growth is usually a sign of a successful business model. Credit oftentimes offers the immediate liquid capital funding for growth. Sometimes it’s an organic opportunity to expand operations, whether it’s lease larger space, purchase equipment or increase your workforce to meet a demand. Sometimes it’s an inorganic opportunity to buy out a competitor. The longer and better your business’ credit history, the better your chances of a lender approving you for a loan when you need it.
The Best Reason to Use Credit Cards
I have outlined 10 reasons to use credit cards for your business. Out of all of the reasons I have outlined, by far the most compelling reason is the ability to borrow money interest-free for 30 to 60 days, if not more, based on what I have stated so far. If you’re not a new business, and you have a bank account for your business, you could apply from an operating line of credit. The rates on LOC are way more attractive than credit cards, but there is no interest-free grace period. Credit cards offer business owners the unique opportunity to borrow money for free for 30 days, and the option to pay anything above the minimum payment. If you carry balances, sure you will pay high-interest rates, but the point to this article is to take advantage of the benefits that only offer a good return if you don’t carry a balance. In the off chance you cannot pay, the revolving credit is unsecured. Your credit will be destroyed, but they can’t just freeze or seize your assets. One thing credit cards won’t do that a default on a secured loan will do is jeopardize your business, or even worse, your personal assets.
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Any credit, when used irresponsibly and without the sufficient funds to repay can ruin you, your family and your business, but when used responsibly, can be an ally. Remember, lenders make their money from interest. Credit cards, in particular, count on its customers to keep balances on a revolving credit with high-interest rates. They want you to stay current with your bills, but they also prefer to charge you interest in the process. It all comes down to being disciplined and well-informed about all the rewards and risks from any strategy you take. But let’s face it: If you’re already an entrepreneur or investor or considering becoming one, you probably already know this.
Disclosure: I am not certified financial advisor and of course you should never take anything you read on the internet as fact from expert advice. I am only writing about the reasons for using credit cards based on my own personal experience and do not necessarily reflect the experiences of others. You should do your own research and always perform your due diligence before committing to any strategy.