An Introduction to Business Credit Cards

Have you ever wondered what the difference is between a credit card aimed at business owners and a regular credit card?  Perhaps you own a small business or your own company and are interested in getting cards for business use.  Business credit cards are for the most part like consumer credit cards with a few exceptions – let’s take a look at them and see how they work and if they are the right tool for you to use in your business.

First, business cards are issued in the business name by using business financials – most of the time.  We say most of the time because the exception to the rule is for sole proprietorships where the credit card is the responsibility of the sole owner.  That means if the business goes belly up, the debt is the responsibility of the owner.  For other forms of business the credit card is based on the business entity – if the business goes under then no individual is responsible for the debt directly.

Of course, the downside to all of this is that in order to qualify for the card your business must have a financial background that can be verified.  This is often done based off the tax id number assigned to the business.  Just like the consumer credit market, the business credit market tracks payment and default histories of businesses.  Most business owners will find they may have a hard time getting a card in the business name for a year or two after they establish a business because of the lack of credit history of the company.

Next, many business cards are payable in full each month – a big shift from the consumer credit market where you can pay a small portion of the total balance every month.   Though some business cards may offer payment plans as well you will often find that they carry much higher interest rates.

Who can get a business card inside your company?  Even though the main account is often issued in the company name using company financials, individual cards attached to the main business account often has set credit standards that the individual must meet.  The individual is not responsible for the card, but they still must have a rather decent credit history in order to be able to get a card issuer in his/her name.

Finally, it’s a good idea to remember that business credit cards are meant for business purposes.  Sometimes the cards are limited in what they can be used for – for example, some business cards will not work at amusement parks, casinos and other entertainment venues.  Most businesses can also request that the cards be restricted even further so that they cannot be used at restaurants, gas stations, etc.

Business credit cards are a good financial tool for a growing business to use in order to help track and manage finances better.  However, like any financial tool, they must be used responsibility and for internal accounting controls must be tracked and reconciled on a monthly basis.  The potential for misuse of funds increases anytime a new card is issued in the name of a business.

Popularity: 5% [?]

Credit cards on your keyring?

In a world where everyone is paranoid about getting their personal financial information stolen it would seem like an absurd idea for a credit card company to offer mini cards to attach to the one thing people notoriously lose: key rings.

Of all the items that people absentmindedly misplace, key rings are at the top of the list. It blows my mind that some people think that putting a credit card fob on their key rings is brilliant. I mean, I’m all in favor of convenience, but when the idea makes it easier for anyone to use my credit card, I’m not sold on the idea. After all, I can’t think of any way to make my keys a bigger jackpot to a potential thief.

“Hi, here is the key to my house, the key to my car, and while you’re at it, here’s a credit card to go get yourself lunch on the way to pilfer my belongings.”

I know that credit card companies offering these fobs tout the fantastic security measures in place for these cards. If it gets stolen then you aren’t accountable for the charges, but that doesn’t mean that it’s any less of a hassle. You’ll still have to contact the fraud department of the credit card issuer, prove that you didn’t make the charges, and in most cases you’ll wind up doing this more than once because some credit card companies make it relatively difficult to dispute charges.

If a thief gets a hold of your credit card and you don’t notice until your statement arrives, you may suddenly find yourself facing several thousand dollars in unauthorized charges. What credit card company is going to reply to this with a simple and cheerful, “Don’t worry about this; we’ll take care of it!” without some investigating? In other words, getting your fob stolen and used by someone is not as easily remedied as some credit card issuers paint it out to be.

There’s no disputing the allure of the convenience, though. Whip out your fob, wave it at a terminal, and away you go. You have to wonder, however, if this convenience might make credit cards way too easy to use in a psychological sense. Plenty of consumers already have a hard enough time making the connection between using a credit card and actually spending money – indeed, studies have shown time and again that shoppers spend more money when using credit cards than they do when they pay with cold hard cash – so what happens to consumers when using a credit card is as simple as waving a proverbial magic wand? Things can get messy.

Maybe you have a credit card fob and you adore it. Maybe you haven’t encountered a single problem with your fob, and you sing praises to your fob on a daily basis. Just keep an eye on your keychain, and always keep it in mind that the fob isn’t some enchanted item…it’s a credit card, and that bill is going to come to you sooner or later regardless of your payment method.

Popularity: 6% [?]

How to Talk to Creditors

At one time or another you’re probably going to have to talk to your creditors. Even if you’re a stellar cardholder, there will come a time when you have a question or want to ask for some increased benefits. Then again, if you have some issues with getting your credit card paid on time each month and you make a habit of going over your limit, there’s a good chance that you’re already familiar with talking to your creditors…or, at least, avoiding their phone calls! There’s a right way and a wrong way to deal with your creditors, regardless of the reason you’re talking to them.

Don’t be mean. What are the odds that the person who answers the phone at your credit card company is the very person who hacked into your account and - out of pure spite for random cardholders – peppered your statement with inane fees and then eagerly awaited your angry phone call? The answer is: not likely.

Don’t call up your creditor and unload your anger on the customer service representative who in all likelihood is more than willing to help you. Haven’t you ever heard the old saying you’ll catch more flies with honey than with vinegar? When talking to a customer service rep, use honey. You don’t want to pour a bunch of vinegar down the throat of someone who has access to all your personal financial information, do you?

Don’t be a pushover. If you’re calling to request a lower interest rate, or to get a higher available credit, or anything else that they don’t necessarily have to give you but it sure would be nice, don’t sound apologetic. Think of it this way: If you’re a customer service rep at a credit card company, which of these two customers would you take more seriously?

“Uh, hi…I heard that some people have lower interest rates than me, and…uh…I don’t suppose there’s any way I could get a lower rate, is there? I mean, I understand if there’s not, but I’m just wondering.”

“You guys have always been great, but I did some research and my interest rate is higher than the average rate offered for people with my credit score. I need to know if you will lower my rate or if I’m going to have to close my card and go get a different one.”

Be firm, but don’t be snotty.

Move up the chain. Customer service reps who answer the phone aren’t usually allowed to waive every fee and make major changes to your credit card account, but they are usually trained on how to turn down your request diplomatically. If you’re asking for something that isn’t unreasonable (like a credit line increase after two years with a perfect payment history) then don’t simply accept a polite “no” from the customer service rep. Thank the rep for his or her time and then ask to speak to a supervisor. A manager has the authority to approve things on the spot, and by asking for a supervisor they know you’re serious. After all, they don’t want to lose your business.

Don’t avoid your creditors. When you’re having money problems, the last thing you probably want to do is to have a chat with the people you owe money to. You’d be amazed at how benevolent creditors can be when you keep them informed of your situation and don’t give them the runaround.

Offer to send them a copy of your budget to show that no, you really can’t afford to pay them $100, but you’ll gladly send them $10. They’ll be more willing to work things out with you if you’re upfront and you don’t go into hiding.

Don’t fear your creditors, but at the same time you shouldn’t turn yourself into a nightmare customer. Be civil, but be persistent. Remember: If you can’t get satisfaction from your credit card company, go find another one. There are plenty of them out there.

Popularity: 5% [?]

How to survive the coming Recession

Hope for the Best but Plan for the Worst

Many have felt the grips of what looks to be an economic recession in the making. Gas prices are skyrocketing, the housing market is falling, and the government is giving away money - if that doesn’t scream “recession” then nothing does. Some economists proclaim that a recession can be avoided while others insist we’re already in one. If the experts can’t agree, then how do we know when we’re there?

A recession is determined by the gross domestic product (GDP), which is the total market value of the final goods and services produced in the U.S. When this number decreases for six consecutive months, by definition, we experience a recession. Simply put, the U.S. is losing money and the economy is shrinking rather than growing. This can cause some serious concerns for many people, not the least of which is job security.

We may not be able to predict when a recession will occur, but there are ways that you can prepare for one and keep any short-term losses to a minimum. After all, the axiom that it’s better to be safe than sorry was probably first uttered by an economist.

There are four main areas affected by a recession.

Number one: Investments and Savings

A recession tends to cause market prices to fall, thus creating short-term losses for those invested in the market. When sitting with a financial advisor, it is important to build your portfolio based on your goals and risk tolerance because there may be situations where it is in your best interest to just ride out any market downturns. The younger you are, the better this is for you as you will have more time to recoup any losses.

One strategy for weathering market drops is to diversify your portfolio among different asset classes. According to many financial experts, including Charlie Massimo of CJMFiscal Management (as reported by Consumerreports.org), this diversification strategy can help protect you from all of your investments going down at the same time.

You should be talking to your financial advisor every six months anyway to make sure your goals haven’t changed, but if it’s been a while now is the time to schedule those appointments. Talk to you advisor about some other approaches to help you deal with market volatility, specifically those related to a recession.

It’s no secret that the national savings rate in the U.S. has been on the decline the last three decades.  In the 1970s people saved close to 15% of their income; in the 80s that number dropped to anywhere from 5-8%, and now the figures fall below 0%. That says that American’s are simply spending more money then they make and there’s nothing left over to save. But savings is important during a recession because if you lose your job, you need something to fall back on.

A typical emergency fund should be three to six months of your monthly expenses, saved and kept in a liquid account such as a money market where your funds can’t lose value. If you lose your job during a recession, you’re not totally without funds and you have a little room to maneuver until you find another job. You may think saving this amount of money is too difficult to achieve, but the reality is that you can do it and now’s the time to start. Begin with a small amount, like $5 or $10 every week. Surely you can cut an extra $5-10 by foregoing that Starbuck’s coffee once a week or by bringing your lunch rather than eating out. You’ll be surprised by how quickly it adds up.

Housing

The housing market has gone down quite a bit as of late and the sub-prime fallout hasn’t helped matters any. Even so, there are a few things to keep in mind that will help while the economy is uncertain.

Don’t sell if you don’t have to. It’s not a seller’s market right now and trying to sell if you don’t need to may not be in your best interest financially. With home values dropping and foreclosures increasing, buyers get their pick of the litter, so to speak. A seller isn’t going to buy your house when others in the area are asking for less.

If you do have to sell, be flexible. As mentioned above, sellers have a lot more bargaining power during a downmarket. Be prepared to take a little less in order to sell the house.

If you’re buying, be sure that you don’t overextend yourself. While it’s a great time to buy a home, what with interest rates dropping and the prices on homes falling, overextending yourself financially can put you in a bind if things go from difficult to worse with the economy. Keep your eyes open for a good deal, but don’t jump in head first without considering your options and their consequences.

Borrowing

If there’s any good news to a recessionary period it’s that interest rates tend to drop. This is done on purpose in hopes that people will take advantage of the lower rates and actually borrow money thereby stimulating the economy. What this means to you as a consumer is that now’s the time to fix any variable rates or refinance your home if you were planning to do so.

As of this writing, several banks and credit unions are offering fixed home equity rates as low as 4.99%. This may be a good time to combine all of your unsecured, high-interest debt into one low-interest, tax deductible payment. As you want to get rid of as much debt as you can before a recession hits, taking out a home equity loan may provide you with the best solution to your situation. If not, then be sure to work on lower your debt so you don’t feel the crunch later on.

Employment

When a recession hits, layoffs are inevitable. But, there are things you can do to help protect your position with the company.

Get additional training. Diversify your skills as employers are less likely to lay off people who can do more for the company. Take additional training courses or go back for your Master’s if you’ve been considering it. Companies tend to keep people who can do more than one job, i.e. an engineer who can also manage a sales staff or vice versa.

Network! This is important to start now while you’re not looking for a job. No one wants to be known as the guy who comes around only when he needs something, and you certainly wouldn’t be fond of someone who did it to you. Call up any old bosses or coworkers and let them know how you’re doing or invite them out to an informal lunch. Keep in contact with clients or associates in a broad professional network, that way you have lots of options if you’re ever laid off.

Update your resume. Make sure all of your ducks are in a row so that if you are laid off, you can hit the ground running and hopefully find another job before you’ve exhausted your emergency fund.

If you take the necessary precautions now and a recession occurs, you won’t have too much to worry about. Your assets will be protected, your credit will be in tact, and your family will be provided for. There’s no better peace of mind then that.

Popularity: 90% [?]

The bad credit repair guide

So you’ve had some rough times in the past with your credit?  Don’t feel too bad, many of us have.  Whether it be an unexpected job loss, healthcare costs or unexpected expenses many of us find ourselves up against the wall at some point during our lives.

Unfortunately, one mistake – no matter how small – can damage your credit report for up to ten years.   Many of us don’t even realize this until we go to take out a loan and find out that we don’t qualify because of our credit score.

So what can you do to help repair your credit?  There is no magic fix – and it won’t happen overnight – but if you are willing to work on it there are things you can do that will begin to improve your credit the very first month you start.  In 6 – 12 months time you can really notice a difference by following a few simple steps.

#1 – Pay your bills on time, every month.  Make up a budget, write out a calendar, sacrifice that morning coffee – whatever it takes, just make sure those payments make it to the creditors by the due date.  Consider using online bill pay that many of them offer – it’s usually free and a lot faster than the post office!

#2 – Pay down your debt.  If you have a lot of debt consider taking on a second job for a while to pay some of it down.  Your debt ratio is one of the major factors in your credit score.  You should always aim for between 10-20% maximum utilization of your lines of credit; anything above this and it will hurt your score.

#3 – If you have accounts in collection, work with the collectors – but always get it in writing.  Many collection agencies will remove the negative information from your report in exchange for pull or partial payment.  Don’t be afraid to ask – they bought the debt for pennies on the dollar and so they have plenty of incentive to work with you.

#4 – Obtain your free, annual credit report and look for errors and fix them.  Almost everyone has at least one error on their report.  The credit reporting industry is notorious for having data that isn’t correct.  You are entitled to a free credit report from all three bureaus once a year — use them to dispute information you think isn’t accurate.

#5 – If you can’t afford your monthly payments, work with a non-profit agency to help devise a debt plan that fits your income level.  Never consider bankruptcy except as a last resort – bankruptcy will kill your credit score for a period of ten years.

The process is not going to be easy – but you can do it if you set your mind to it.  Setup a family budget and stick to it; keep track of where your money goes; and most of all get control of your debt.  One year from now you could see your credit score increase by 200 or more points — not to mention your peace of mind increase many times over!

You can do it!  Start today!

Popularity: 8% [?]

Divorce and Credit Card Debt don’t mix!

Where would the tabloids be without Celebrity divorces? The drama, the excitement, the downright cattyness – most of us simply can’t resist the spectacle.

Indeed, as I write this post, the media is abuzz with news of Heather Mills and Paul McCartney’s messy divorce. Apparently Ms. Mills was awarded far less than she had initially sought, but the two years she spent married to McCartney (who has a net worth of over one billion dollars) will still end up costing him an arm and a leg (sorry Heather).

Till debt do us part…

Of course, as any divorcee will tell you, divorce is anything but glamorous. Indeed, ‘excruciating’ would probably be a more fitting adjective. For most of us, divorce is not about fighting over who owns what, but rather who owes what!

If you think divorce might be on the cards (no pun intended) for you or someone you know, be sure to take the following into consideration:

All joint credit cards will continue to be a joint responsibility until either the debt is paid off or until the lender agrees otherwise. Even if your ex spouse is ordered to take responsibility for a joint credit card, if they miss payments then your credit score can be affected! What’s even worse is that if they don’t pull their weight then the credit card company can often legally chase you to pay.

The first thing you’ll want to do is get a hold of your credit report from each of the three main credit-reporting agencies. You need to know the full extent of any debts that will need to be divided. It’s unfortunate, but many people have been surprised to discover debts run up by their ex-spouse without their knowledge – don’t be one of them.

Depending on what you find, you may also want to consider freezing your joint accounts. This means letting the credit card companies know that there is a divorce in progress, and that you want to temporarily stop any new purchases being made. Note, however, that you must still continue to make minimum payments until the divorce is settled and the debt divided up.

By the way, if your soon to be ex is an authorised user on any of your credit cards, you’ll want to seriously consider getting them removed. Any debt an AU runs up on your credit card is your responsibility alone.

Getting down to the nitty-gritty

In the divorce settlement it’s advisable that you pay off all joint credit card debts if you have the means and can come to an amicable agreement. Unfortunately, responsibility for debts once a marriage has ended is one of the Law’s grey areas.

In other words: Even if your settlement states that your ex is responsible for paying off the card, your creditors aren’t necessarily obligated to officially absolve you of the debt. If your ex isn’t their end of the bargain, don’t be surprised if you start receiving increasingly irate letters and calls from their collections department.

If you do still have credit cards in joint names after the divorce then you need to make sure that statements are sent to both of you. Remember that missing a payment will generally hurt two of you equally, so if your ex is going to have trouble meeting their financial commitments then you need to know about it sooner rather than later!

Try to keep it civil…

Don’t go freezing your accounts or removing your spouse as an authorized user without telling them first. Whilst it may be a pleasant thought to think of your soon-to-be-ex in a store, morbidly embarrassed at their card being refused, it’s probably not going to help matters much in the long run!

Make sure they understand that you’re not trying to be spiteful or petty, but that until you’ve figured out who owes what, it’s probably best to stop making any new purchases on credit.

Final thoughts

Divorce is never a pleasant experience, but failing to adequately address financial concerns through your divorce could wind up costing you thousands of dollars and decimating your FICO score, making it nearly impossible for you to get a loan in the future. Ignoring these matters could turn an unpleasant but relatively short experience into an insufferably long and painful nightmare!

Popularity: 7% [?]

Why raise your Fico score?

Your Fico score, in a nutshell, determines your attractiveness as a borrower. The higher your Fico score is, the harder lenders will work to get your business. Likewise, the lower your Fico score, the harder you’ll have to work to get lenders to trust you with their money. A couple of years ago, I had a Fico score of 510, meaning that most lenders figured they were more likely to make a return on their money by drinking a bottle of bourbon and heading down to the track.

Simply put, that little number indicated to potential lenders that, statistically speaking, there was a high chance I’d default on a loan. Really high. In industry jargon, I was a ‘bad credit risk’. This means that lenders were very nervous (to say the least!) about lending me money, particularly if it was an ‘unsecured loan’ like a credit card. The interest rates they offered me would have made Tony Soprano blush.

Oh how I loathed the banks back then!

Of course I now know it was nothing personal, just the cold, impartial laws of economics at work. Basically my Fico score told potential lenders that they couldn’t reasonably expect to make any money if they offered me a ‘fair’ rate. To make the higher than average risk of me defaulting worth their while, they demanded a higher than average return. Econ 101.

Below is a table from the Fair Isaac Corporation (FICO) showing the current relationship between Fico Scores and Interest Rates on 30 year fixed mortgages.

Fico Score                    Interest Rate

500-559                                    12.985 %
560-619                                    12.018 %
620-674                                     7.658 %
675-699                                     6.508 %
700-719                                     5.970 %
720-850                                    5.845 %

Note that there is more than a 7% difference between the highest and lowest rates. On a $350,000 mortgage repaid monthly, the difference in interest charges over the life of the loan is nearly $700,000!

Even a tiny increase in your Fico score could mean many thousands of dollars in savings over the long run.

Popularity: 4% [?]

How not to overspend on a Credit Card

This is a guest post from Living Almost Large - check out her blog now!

As I drew up a complete budget, I’ve tracked my spending for 2007, detailed all money spent on a CC or cash, and finally I understood what my percentages are.  I realized why I always say people can use a credit card but not overspend if you are controlled.  Because we have a built in control using our budget.  What?

Well I’ve realized that 55% of our income is gone pretty much before we see it.  Then another 30% is gone to housing, a conscious decision.  So 85% of our income is gone before we have a chance for it to really be seen even as cash from auto-debits.  It is invested, saved, gone to bills.

So I have 15% of our income to really play with in our checking account.  We now take home less than what we did when we were both graduate students and making 1/3 of what we make now!  Crazy!  Of that 10% goes to fixed monthly bills.  Bills which we’ve agreed to pay and decided is important to our lives.  So we spend 5% of our income a month as choose in “fun”.

Our 10% includes things like homeowner’s dues, car insurance, car tax, electricity, cable/internet/phone, natural gas heat, cellular phone plan, pet health insurance and food, and blow allowances.  The electric and gas are on budget billing with it’s respective company so I use that amount and it works out well.

Now some of these bills are auto-debited on a credit card, but they are budgeted as a fixed amount.  So I have 10% of monthly fixed obligations, which can be decreased if we lost our jobs and needed to tighten our belts, such as cable, internet, etc, but which we have deemed currently as important and necessary to our current lifestyle.

Strangely it’s even how I ranked them in our budget unthinkingly.  Our budget goes Income, pre-tax savings/deductions, taxes, after tax savings/deductions, fixed expenses, and variable expenses.  Everything I mentioned goes in the fixed expenses with the mortgage, property taxes, insurance. 

Food, eating out,  entertainment, fun, personal care, clothes, etc are all variable amounts.  I get 5% with which to prioritize my spending.  These are charges on the credit card.  I have a dollar amount monthly with which I can spend on whatever categories I see fit.  I have “budgeted” amounts but I don’t have to stick to them as long as I stick to the monthly 5%.

I realized this is something we’ve done since forever.  This is how we’ve always budgeted and paid CC in full.  We never really have had a lot of variable expenses.  Most of our expenses have been “pre-set” even if paid for by a credit card.  We view them as a monthly obligation and not “our” money.

During my 2 month cash experiment, all our fixed bills were still paid by credit card or auto-debit.  Nothing changed except my 5% was in cash.  It made me way more frugal in a negative way, because I refused to buy groceries then ended up spending more $$$ to compensate afterwards to restock the pantry.  A more appropriate behavior would have been to just use the cash naturally and grocery shop every week instead of trying to go 4 weeks without shopping (I spent less than $100 for 3 adults in a month, it was ridiculous).  I also specifically did not eat out because we didn’t want to spend the cash.

But now that I have my cash data, my budget percentages, I realize that I don’t have a real problem overspending because I don’t have much money to overspend with.  I consciously have $X/month.  I know I have $X going to savings for specific target funds (tuition, property taxes, etc) and those funds are untouchable. 
Because of this I don’t have large CC bills.  On average probably $1k/month including all fixed expenses charged and variable expenses.  But my budget busters come when we pay for DH’s tuition on a credit card and slam down $25k/year (but at 5% back who wouldn’t use a credit card?).

So while CC aren’t making me rich, they are helping with my frugal behavior.  So I guess this is my personal plan on how not to overspend on a credit card.  I have a lot of fixed expenses, hence 95% of my income is gone before I can have fun.  I do realize that part of my fixed expense are for fun and it’s ironic I only consider 5% fun money, but it’s how I label my spending.

My plan is to one day have 50% fixed expenditures and 50% fun money.  But I’d have to make a lot of money to do that!

Popularity: 4% [?]

PF Bloggers Link round-up: Check it out!

• Seb over at Pinching copper has an interesting piece on the impossbility of a basic standard of living on minimum wages
• Kevin from No Debt Plan has a great entry on ‘Green Home’ resources
• Wide Open Wallet just wrote a heart-warming post about a good Samaritan who took pity on her at the zoo
• Penelope shares some tips on getting the most out of your cardboard boxes at Our Fourpence Worth
• Cinder talks about his experiences investing time in a friend’s small business over at The Social Marginal
• Ben from Trees Full of Money talks about the psychology behind Car buyers remorse
• J.B. from Get Rich or Die trying reports that his car was broken into and how best to deal with it
• F.M from Saving Savy asks how you cap your luxury spending
• …And Living Almost Large talks about her experiences drawing up a comprehensive budget

Enjoy!

P.S: The raise-your-Fico and win an iPod competition starts tomorrow!

Popularity: 3% [?]

Where did all the Credit card offers go?

Dear Credit Card offers,

What’s up guys? Long time no see! It was only a few months ago that you were in my mailbox almost every day, and now I’m lucky if I see you once a fortnight. It seems like only yesterday you were trying to seduce me with all sorts of crazy promises. A 0% interest rate on purchases for the next 12 months? You sweet talker, you!

Of course I never fell for it, charming as you were. I know your type - you’ll say anything to get into my pants, but we both know you won’t respect me in the morning. I resented your false overtures of friendship and hollow promises. I told myself I’d die happy if you never called me again.

And yet…

Now that you don’t drop around anymore, I’d be lying if I said I didn’t miss the attention. Sometimes it’s nice to feel wanted, even if it is for all the wrong reasons.

Look, I read the news. I know that you’ve been burned a lot lately. I’m not going to be a jerk and say it’s karma (though I hope you can at least appreciate the irony), I just want to know if I’ll ever see you again.

We all get our hearts broken once in a while, ya know?

Popularity: 4% [?]