By Sharita Humphrey
Your business credit card is more than just a piece of plastic to buy supplies with! If you use it properly it will help you build a solid financial foundation for your business.
But in order to use it well, you’ll need to learn the lingo that goes with your new card. Like the rest of your business, getting to know your way around the terminology can come with a learning curve! The following list of terms will help you be an informed business owner. And you’ll be able to maximize the value of using your business credit card.
1. Annual Fee: Some credit cards charge a fee for every year that you keep the card. While annual fees are more common on credit cards that come with rewards, or for rebuilding bad credit, some cash-back rewards and small business credit cards also charge these fees. Also, depending on the credit card, you may not have to pay an annual fee for the first year that you own it.
2. Authorized User: An authorized user is someone who is entitled to use your credit card account to make purchases but is not liable for paying the bill.
3. Balance-to-Limit Ratio: Also known as a credit utilization ratio, the balance-to-limit ratio is used in the calculation of your credit score. It compares the amount of credit being used to the total credit available. Having a low ratio – a small debt compared to a larger amount of available credit – is good for your credit score.
4. Business Guarantee: A business guarantee is a type of agreement established between the company holding the card and the card issuer. Rather than the current or former owner of the business, it makes the business itself responsible for repayment.
5. Commercial Credit Score: Also known as a business credit score, a commercial credit score predicts the likelihood that a company will be able to pay its debts on time.
6. Dispute: If you notice any suspicious or unauthorized transactions on your business credit card – or if you disagree with a charge on your statement – you can dispute it with your card issuer. Typically, the issuer has two billing cycles to resolve the dispute. Meanwhile, you may receive temporary credit for the disputed amount. This may vary by issuer, so be sure you know the specifics for your particular account.
7. Discharged Debt: A discharged debt is a type of debt that’s been forgiven or canceled in bankruptcy court. Legally, you’re no longer obligated to pay the discharged debt and your creditors can’t attempt to collect it. However, note that discharged debts appear on your credit report for up to 10 years.
8. Equal Credit Opportunity Act (ECOA): Enacted by Congress in 1974, the Equal Credit Opportunity Act (ECOA) prohibits discrimination in lending. The ECOA makes it illegal for a creditor to discriminate against an applicant based on age, color, race, national origin, sex, marital status, or religion. It applies to all kinds of consumer lending – including credit cards.
9. Extended Warranty: An extended warranty is a type of coverage that extends the warranty on certain products that you purchase with the card for one year or longer. Many credit card issuers offer this as a bonus perk. Note that while you may not be required to register the product to take advantage of this benefit, it’s best to keep your original warranty information and receipt.
10. FICO Score: A FICO Score is a type of credit score that potential lenders use when evaluating whether or not they should enter a contract with you and your business. It is a three-digit number based on the information in your credit reports. It helps the lender determine how likely you are to be able to repay a loan. In turn, this affects how much you can borrow, what the interest rate will be, and how many months you have to repay.
11. Forbearance: Forbearance programs are provided by credit card companies to give temporary relief to struggling cardholders. It can take different forms, such as reducing interest rates; lowering minimum monthly payments; eliminating some fees, or postponing payments for six months or longer. Note that forbearance is NOT forgiveness – cardholders must still repay their credit card debt.
12. Guarantor: When starting a new business, lenders might ask you to provide a guarantor. Essentially, a guarantor is a person who signs an agreement to pay off the loan if you or your business can’t meet the repayment obligation. The presence of a guarantor makes lenders more willing to approve loans for high-risk borrowers.
13. Introductory Annual Percentage Rate (Intro APR): Also known as an introductory rate, the Introductory Annual Percentage Rate (Intro APR) is a low rate that is offered by credit card companies. It acts as an incentive to apply for the card. After the introductory period is over, the APR goes up. The Credit Card Act of 2009 requires that introductory periods must last at least six months.
14. Interest Rate: Essentially, an interest rate is a price that a lender charges for lending money. When it comes to business credit cards, interest rates can be a little trickier since lenders set multiple interest rates. With credit cards, the interest rate is calculated based on your average daily balance times the rate.
15. Line of Credit: A line of credit is a type of revolving loan that provides borrowers with access to funds up to a certain limit. They are able to pay it back and borrow it again as long as the line of credit is active. Lines of credit may be unsecured (such as with credit cards) or secured (such as with home equity lines of credit).
16. Merchant Account: A merchant account is a type of bank account which enables a business to accept debit cards, credit cards, prepaid cards, and other types of electronic payments.
17. Personal Guarantee: A lender may ask you to sign a statement of personal guarantee if you’re looking to finance your new business but don’t have a high-value asset to offer as collateral. This statement confirms that you, as an individual, will act as the guarantor for your business’ debt. It makes you personally responsible for the balance of the loan, even in the event that your business fails.
The Bottom Line
Getting clear on these terms will help you get the most out of your business credit card. Your business – and your credit – will be better for it!
About the Author: Sharita M. Humphrey is an award-winning finance expert, money mentor and Certified Financial Education Instructor. Once broke and homeless, Sharita completely transformed her life and is now a successful entrepreneur and one of the most in-demand money coaches for individuals and business owners of color. In 2020, Sharita was named the National Financial Educator of the Year.