When a new business owner applies for a business credit card, one of the first things the bank would consider is his personal credit history. Of course, a high credit score would most likely guarantee an approval while a poor credit score may lead to rejection. Clearly, business credit card issuers greatly rely on one's personal credit when approving credit card applications.
What About Personal Liability?
As the owner of the company or the business, submitting your personal credit history for review would mean that you take responsibility for all the charges that would be incurred in your account. This is called the "personal liability clause" and is included in your Agreement.
What does this mean? Every business involves some risks and in case things do not work out as expected for your company, you would still be personally accountable to pay for the debts in your account. Whether your business succeeds or fails, you are liable for the charges in your business account.
This is why new business owners are advised to apply for a corporate credit as soon as they launched the business. Upon registration with a business credit bureau, it could take a year or two before a business can completely separate his personal credit history from his corporate credit. Thus, the earlier you start building up your credit, the sooner you'll be released from your personal liab ility.
Why Use Business Credit Cards with Extreme Caution
Because of the risk, business owners must use their cards with extreme caution. As much as possible, business owners should pay off their balances in full each month. Paying off your monthly charges reduces the risk of uncontrolled debt. It also eliminates the need to pay additional costs such as the interest rate and penalty charges.
Another habit that entrepreneurs must avoid is using this card for personal expenses. For instance, you may be tempted to charge your groceries or restaurant bills to your card especially if you have a high credit limit. But combining your personal and business expenses into one account would make it harder for you to track your business spending and make finance-related decisions.
When distributing supplementary credit cards to your staff, good judgment is a must. Aside from choosing only your most trusted employees, you must also keep a close watch on how they use your business account. Always check on your monthly billing st atement to see the exact purchases or bills made by your employees.
Remember that should your employees abuse your business account, they will not be the ones responsible for payment. As the owner of the account, your credit card company would come after you for these charges. Keep in mind that whether those credit card charges were made with your consent or not, you will still be personally liable to pay. Even worse, your personal credit history can be badly affected if you fail to keep up with your business credit card payments.
Pamela Williams is a Loan Consultant, Internet Marketer, Writer and owner of BusinessCreditCardSite.com, a finance company in Las Vegas, Nevada that provides support for businesses all across the US particularly with obtaining credit cards for business. Visit http://www.businesscreditcardsite.com
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