5 Credit Card Habits That are Bad for Your Business

by MyMoney Mantra FinTech (Financial Technology)

Overspending on Credit Cards overspending is like playing with fire. Does that sound frightening enough? Look at the positive aspect of the statement. Fire is one of the best friends of humanity. No one can live without fire. You need fire to help you in various ways. The trouble starts when you start playing with it. Once you make the mistake of taking it for granted, it will not be long before fire engulfs your entire life and destroys you completely.

The Credit Card-fire analogy

Credit Cards are similar in many ways. You use them at your convenience. It increases your purchasing power. But the moment you incur a huge debt and start repaying the minimum amount due every month, it is the beginning of your financial downfall. You find that paying the minimum amount due gets you nowhere. This bad habit can prove harmful to your business.

Let us look at five bad Credit Card habits that can ruin your business.

Defaulting on your personal Credit Card payments

Many business people think that their personal accounts are separate from their business accounts. They are right, but only up to an extent. As far as loans are concerned, banks pull up the personal credit reports along with that of the business enterprises. Any default on your personal credit cards can show up in a negative light.

Defaulting on your personal Credit Cards reduces your chances of availing Business Loans. You might just not get the loan when you badly need it. Therefore, it is always advisable to have an impeccable personal Credit Card repayment history.

Depending too much on credit for your business

Availing credit facilities for doing business is the norm everywhere in the world. No business enterprise relies on its funds alone. They go in for some sort of bank finance at some point or the other. However, many businesses make the cardinal mistake of depending too much on credit from banks. It is always advisable to have your own funds along with the bank funds. This plays a great role in improving your overall credit score.

Having one Credit Card for all kinds of businesses

There are Different types of Credit Cards. One should know that the basic Credit Cards are different from the others. There are airline Credit Cards, fuel purchase Credit Cards, concierge Credit Cards, and most importantly business Credit Cards.

Business Credit Cards come with a lot of rewards. It is better to have these cards to cater to business expenses. The rewards can be small in the earlier stages, but, over a period, they grow in stature. Knowing the benefits and drawbacks of having business Credit Cards is the need of the hour.

Remember, it is always better to have a variety of Credit Cards at your disposal. In this way, you distribute your debt evenly. CIBIL, the credible credit bureau considers a maximum utilisation of around 20% of the limit as optimum. Hence, having five Credit Cards can help you appropriate the debts in a proper manner. Suppose you have five cards with credit limits of Rs 1 lakh each, it is better to have an outstanding of Rs 20000 each on these five cards instead of running a consolidated bill of Rs 1 lakh on a single card. Not understanding the power of segmentation is also a big Credit Card mistake.

Ignoring your online account

Credit Cards are the most fraud-prone areas. The maximum frauds occur due to misuse of the Credit Card passwords. Using your cards at unauthorised browsing centres and websites can result in compromising of valuable data leading to all kinds of theft, data and financial. The best way to keep track of your Credit Card frauds is to check up your online Credit Card accounts. Having SMS and email alerts for every card usage is also a good way to keep frauds in check. Use double authentication methods such as an additional password or OTP is also a credible way of safeguarding against frauds. If you check your online accounts frequently, you can identify any fraud the moment it is committed.

Using Credit Cards to pay other debt

This is one of the biggest mistakes people make. The Credit Card debt is the most expensive one. The rate of interest on the Credit Card dues is in the range of 36% to 39%. This is invariably higher than any other type of debt in the industry. Hence, using your Credit Card balances to pay off cheaper debt is definitely a big mistake. Some Credit Card issuers come up with attractive promotional schemes whereby they offer 0% interest on a balance transfer of loans like student loans, personal loans, and even mortgage loans. Never fall into this trap. This is the biggest blunder you can commit as far as Credit Cards are concerned. Use your cards on an emergency basis and especially only up to the amounts you can afford to repay before the due date. Running up a huge Credit Card deficit automatically shuts down your other avenues of raising financial assistance.

Also Read: Should You Apply for Personal Loan to Repay Credit Card Debt?

Precautions to take when you apply for a Credit Card for business purposes

· Know your limitations. Never try to exceed them.

· Use your card wisely and pay the entire balance before the due date. Carrying forward any amount can put you in a debt trap.

· Take a secured Business Loan to run your business. Use your card as a supplementary means of finance.

· Have different Credit Cards for business and personal use.

· Know the features of your cards and avail full benefits. For example, do not use your basic Credit Card to refuel your car. Similarly, use an Airline reward Credit Card for purchasing your airline tickets.

Inference:

Credit Cards are useful instruments as they can help you in an emergency. But, over-reliance on your cards can cause problems. Use a variety of cards for your business and distribute your debts properly. This proves that Credit Cards can be your best friends in times of need.

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