Credit cards are a common sight in wallets and purses, used for nearly a third of all in-person purchases. There’s nothing strange or novel about them.
And yet, despite their ubiquity, there are a lot of misconceptions about how credit cards work and the best way to use them. Should you use them regularly, or only for infrequent, major purchases? Do they help or harm your credit?
Here are five things you may not know about credit cards.
1. There’s No Reason To Carry A Balance If You Don’t Need To
One of the most common bits of conventional wisdom regarding credit cards is just wrong —Â a lesson I learned all too recently
You’ve probably heard at some point that it’s good to carry a small balance on your card every month, ostensibly to build your credit and keep your credit card company happy. Turns out that’s completely false. Personal credit cards are required to give you a 21-day or more grace period before they can start charging interest on a purchase. Business credit cards don’t have that hard and fast guideline (see below), but they usually do extend a grace period as a courtesy. If you pay your balance off within that time, you won’t owe any interest on your purchase and you’ll still earn whatever reward points your card offers.
But might your credit card company cancel your card if you don’t pay them interest? It’s unlikely. The company still makes money off transaction fees when you swipe your card.
Now, there are times you may find it convenient to put a big purchase on your card and pay it off slowly. There’s nothing wrong with that — just know that you’re not achieving any greater ends by delaying repayment.
2. Your Card May Be Canceled If You Don’t Use It
Since you now know you can safely use your credit card without paying interest, you don’t have to be scared of using it. Which is a good thing!Â If you don’t use your card, your credit card company may simply cancel it.
There’s no telling when or if that will happen, but if you haven’t used your card in a couple months, the chances of your card being canceled increase.
If your card is canceled, don’t take it personally. You didn’t do anything “wrong,” you just weren’t making your credit card company any money. It’s often possible to get the decision reversed with a timely phone call.
3. Most Rewards Cards Are Cash Back (Even If They Aren’t Called Cash Back Cards)
Credit card rewards systems can be divided into a number of different categories, but one of the oldest and most popular is the cash back card. It’s a simple reward structure. For every dollar you spend, a small percentage of that payment is returned to you in the form of statement credit, a check, or a gift card.
Turns out most reward cards will let you cash in accumulated reward points for statement credit, even if they aren’t cash back cards. This can be handy when you simply need to shave a few dollars off of your statement for the month.
So why would you ever get a cash back card? Cash back cardsÂ tend to reward generic purchases at a higher rate than other reward schemes, which give you a higher return for buying specific types of goods and services (flights, hotel stays, office supplies, etc.). If your purchases are concentrated in a particular area, you may want a rewards card. If there’s not much of a pattern, consider a cash back card.
4. Business Credit Cards Play By A Different Set Of Rules
In 2009, Congress passed the Credit Card Accountability Responsibility and Disclosure (CARD) Act. The legislation established standards for personal credit cards. These include things like:
- Giving customers enough time to pay their bills.
- No retroactive rate increases.
- Payments are applied to the highest-interest debt first.
They’re great protections for credit card users. And they don’t apply to business credit cards.
Business credit cards are still something of a wild frontier, with terms and rates that can change with little notice. To entice customers into this riskier landscape, credit card companies will usually reserve their best reward programs for business credit cards. If you’re someone who reliably pays off your credit card every month, the risks are small. If you carry balances — and especially if you miss payments — you may find yourself facing very unfavorable terms.
5. You Don’t Have To Own A Business To Get A Business Credit Card
Just like there’s no duck in that packet of duck sauce, there’s no business in business credit cards. Okay, that analogy isn’t great, but the fact remains that (most) business credit cards can be acquired by individuals who don’t actually have businesses.
In fact, even if you do have a business, you have to sign a personal guarantee to get a business credit card. That means you are personally accepting liability for the debt, which essentially waives the financial partition you would otherwise enjoy between your business and yourself if you were incorporated.
On the other hand, if you’re purchasing a high volume of goods and services as an individual and want to cash in on business card rewards and perks, you’re able to do so.
If you want a credit card that respects corporate protections, what you need is a corporate credit card. Just be aware that you’ll have to be doing over $4 million/year in revenue to qualify for most of them.
Hopefully, you’ve found one or more of these credit card tidbits illuminating and have some new ideas about how to make the best use of your plastic.
If you’re looking for a card for your business, check out our business and personal credit card comparisons.
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