We all know the old adage, “you can’t judge a book by its cover.” What you might not know is that banks apparently had this in mind when branding business credit cards. You see, one would think there’d be significant differences between general-consumer and business credit cards. However, according to a recent Card Hub study, the only thing that really distinguishes a business credit card from a general-use card is the fact that a company is liable in addition to an individual cardholder.
Oh, and the fact the new credit card law (CARD Act) only applies to consumer credit cards. In light of this, a clear hierarchy of business credit card issuers actually emerges when you compare the extent to which issuers recognize the bond between consumers and business credit cards and in turn proactively apply CARD Act protections to these spending vehicles despite their branding.
Ultimately, you are left with a list of the good, the bad and the ugly business credit card issuers.
While Capital One and American Express fall in the “good” category thanks to their transparency and the steps they’ve taken to apply certain important CARD Act protections to business credit cards, neither compares to Bank of America. In contrast to other recent moves by the company, Bank of America leads the business credit card market on the merits of applying every major CARD Act protection to its business-branded spending vehicles, including the provision against increasing interest rates on existing balances unless an account is 60+ days delinquent. Bank of America therefore provides small business owners with much-needed debt consistency and expense tracking capabilities together with the simplicity of a single credit card. No other issuer can make such a claim.
The “bad” category is made up of issuers who failed to apply a single major CARD Act provision to their business credit card offerings. The only saving grace for Chase and Discover is that they’ve voluntarily reworked their business credit card statements to reflect CARD Act mandates and they were transparent about their policies. Citi, hanging by a thread, can only say that it’s transparent.
To borrow from The Hangover, we call this place “Loserville,” and its residents are Wells Fargo, HSBC and U.S. Bank. Not only did each of these issuers fail to apply a single significant CARD Act protection to its so-called business credit cards, but none of them would even content on their policies with a modicum of transparency.
There are a few conclusions we can make as a result of these findings. First, the credit card operations at Wells Fargo, U.S. Bank and HSBC seem not have the underwriting sophistication to succeed without secrecy and gotcha-type tactics. What’s more, these issuers clearly do not possess the foresight necessary to realize that the extension of the CARD Act to business credit cards is inevitable and that proactive adoption of the law is preferable to federally-mandated change.
The Fed and the new Consumer Financial Protection Agency have made it clear that they are dedicated to protecting the new credit card marketplace, and until issuers learn to self-police, the chances for additional regulation are rather high. Finally, the lack of vision within these banks not only puts customers at a disadvantage, it also signals fundamental organizational issues that could hurt their performance moving forward.
Until more banks get with the program, small business owners have two choices when looking for a credit card with which to carry a balance. They can use either a Bank of America business credit card or any general-use/consumer card. That way you won’t be taking the risk of seeing the cost of your debt suddenly rise.
There is simply no reason to settle for anything less than the best when your business’ debt costs are on the line. Of course, when it comes to purchases that will be paid for in full by the end of the month, the distinction between business and general-use credit cards isn’t that important, and your key considerations should instead be rewards benefits and expense tracking capabilities.
Note, everybody should start their own business to make more money and lower their taxable income. The best business to start is a blog. Check out my how to start a blog tutorial. From there, you can sell your goods or be an affiliate for products you believe in. The startup cost is the lowest around, and it’s easy to do. Not a day goes by where I don’t thank my lucky stars for starting Financial Samurai in 2009! It’s absolute freedom!
Related: The Best Small Business Credit Cards
Looking for an awesome travel rewards credit card? Check out the Chase Sapphire Preferred® Card and other great rewards cards. I use my Chase credit card for all my business and travel spending to get points for more free travel, insurance in case my bags are lost or my flight is stuck, and more insurance for defective products I buy and want to return. Everybody should have a credit card for the free 30 day credit. Just make sure to pay off your credit card every month in full! Check out some of the benefits:
- Earn 50,000 bonus points when you spend $4,000 on purchases in the first 3 months from account opening. That’s a ~$650 value right there.
- Named a ‘Best Credit Card’ for Travel Rewards by MONEY Magazine.
- You get 2X points on travel and dining at restaurants & 1 point per dollar spent on all other purchases.
You can sign up for the card here.
* Manage Your Money In One Place: Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. You can use Personal Capital to help monitor illegal use of your credit cards and other accounts with their tracking software. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.
Updated for 2020 and beyond.