Whether you’re starting a business or looking to grow one, you’re most likely going to need some form of credit. A business credit card is a popular tool for owners who need quick access to cash. On the other hand, a business line of credit could also be a good option.
While credit is great for business owners, you must remember to pay the money back on time. Otherwise, it could significantly affect your credit score or put you in debt. Consider reaching out to a debt attorney for more information on how they can help you manage your credit and lower your debt.
What’s the Difference Between a Line of Credit and a Credit Card?
A line of credit lets you borrow money against a revolving credit line, rather than receiving all the money in one lump sum like a loan. In a nutshell, it’s a preset amount of money that a bank or other financial institution agrees to lend you. You can take money out of the line up to the maximum, and you’ll only pay a fixed interest rate on the amount you borrow.
On the other hand, credit cards have a set limit and allow you to make purchases that you pay back by the end of the month. Most credit cards offer rewards programs, while lines of credit do not. However, they also tend to have higher interest rates for not paying your bill on time.
Both credit cards and lines of credit can be secured or unsecured, depending on your credit score. For secured credit, you usually have to put down a deposit. The amount also depends on your credit score.
When to Use a Line of Credit
You may be familiar with lines of credit, such as a home equity line of credit. The good news is that business lines of credit work the same way. Instead of receiving the full amount all at once, you can withdraw from the line as needed.
For example, if a bank approves you for $100,000, you can take out $10,000 one month and $50,000 the next month. You’re not obligated to take or use the full amount. Lines of credit are useful if you don’t know how much a specific project will cost. You could use it to move offices, open a new storefront, or hire more employees.
To obtain a line of credit, most financial institutions will require you to be in business for at least six months and to gross more than $25,000 annually. While most places do not require a minimum credit score, a score of 500 or higher will likely qualify you. If you don’t meet some of the requirements, you may receive a secured line of credit. With a secured line, a bank may require you to provide collateral or even put cash down against the line.
When to Use a Credit Card
A business credit card gives you a fixed amount of credit every month. Credit cards are best when you know how much the cost will be. If you’re buying new supplies or want to cover other expenses, a credit card is the best option. You can also issue multiple credit cards to employees on the same business account.
Most business credit cards will report your transaction history to business credit bureaus instead of personal bureaus. This will allow you to grow your business credit while protecting your credit. Maxing out your personal credit cards for business expenses can still negatively affect your credit score even if you pay the full balance on time.
It’s relatively simple to find what credit score is needed to open a business credit card. A simple Google search will give you an estimate. However, most business cards required a credit score above 600.
Consult a Trusted Debt Settlement Lawyer
If you suspect your debt is getting out of control, you should consult with a trusted debt settlement lawyer. At McCarthy Law, our attorneys understand the stress of debt and the resulting financial hardship. Our team is dedicated to fighting for your financial freedom. To schedule a consultation with a knowledgeable and experienced debt settlement paralegal, call our office at (855) 976-5777 or fill out an online contact form.