Credit Cards
Credit cards fall into a different class of borrowing called revolving credit. With a revolving credit account, the borrower usually has ongoing access to the funds as long as their account remains in better standing. Revolving credit card accounts may be eligible for credit-limit increases on a regular basis. Interest rates are high than personal loans generally. Revolving credit works in a different way than a personal loan.
Borrowers have access to a specified amount but they don’t receive that amount in full. Rather, the borrower could take funds from the account at their discretion at any time up to the maximum limit. Borrowers pay interest on the funds they utilize so a borrower can have an open account with no interest if they’ve no balance. Credit cards can come in several varieties and offer many conveniences.
The good credit cards can include ZERO percent introductory interest periods, balance transfer availability, and rewards. On the other end of the spectrum, few can come with higher annual percentage interest rates combined with monthly and annual fees. All credit cards can typically be used anywhere electronic payments are accepted. Top-quality cards with rewards points may be highly beneficial for a borrower who uses the perks and pays balances down monthly. Rewards cards can provide cashback, points for discounts on purchases, points for store brand purchases, and points toward travel.
In general, credit cards may be unsecured or secured. Unsecured cards provide credit with no collateral. Secured cards are frequently an option for borrowers with lower credit scores. With a secured card, a borrower is needed to provide capital towards the balance limit of the card. Secured cards have varying terms so some can match the secured balance, some can provide an increase after a specified amount of time, and some can apply the secured balance to the card as a payment after many months.
Overall, every type of credit card will have its own way of accumulating interest so it can be essential for reading the fine print. Unlike personal loans, where your monthly payment is typically the same over the complete repayment period, a credit card bill will vary every month. Some credit cards provide borrowers the benefit of a statement cycle grace period which allows for freely borrowed funds. Other cards charge daily interest with the final interest charge at the month-end. For cards having a grace period, borrowers can find that they have got around 30 days to buy something interest-free if the balance is paid before interest starts.
Pros
Ongoing revolving credit balance that will charge interest only when funds are utilized
For those with good credit, cards with ZERO percent introductory interest rates, grace periods, and rewards
Accounts in better standing usually eligible for credit limit increases on a regular basis
For those with limited and poor credit, ability to build up to best credit terms over time
Cons
• Interest usually higher than personal loans
• Interest and fees can add up
Comprehensively, on the surface, financing with a credit card can look like a simple option, but as with all borrowing, it’s important to do your due diligence. Credit cards can provide a viable alternative to personal loans since they may be available with ZERO percent interest and can offer some grace periods. Convenience and rewards points are other advantages.
However, as is the case with any credit borrowing, interest and fees may be a considerable burden. If you have found yourself stuck with an expensive card and are looking for something with a low-interest rate, there are many cards currently available that are ideal for anybody looking to transfer their balance.
Personal credit cards
Personal credit cards, on the other hand, are beautiful heavily regulated, which gives cardholders many protections. For example, credit card issuers cannot revoke your introductory APR offer and start charging new transaction fees without giving you 45 days’ notice. They are limited in terms of how much they can charge for late fees, over-the-limit fees, as well as penalty fees. That makes personal cards a bit safer for small-business owners, but it does not actually outweigh the drawbacks of using personal cards for business use.
Personal cards tend to have low credit limits than small-business cards, so they cap your spending power. Rewards on personal cards do not actually compare to bonuses on business credit cards either. And using a personal card for business expenses may be a nightmare come tax season when you’ve to parse through every single transaction to figure out which charges were business purchases and which were personal expenses.
So, let us talk about using personal credit cards for business expenses. Businesses tend to spend and make extra money than individuals, so credit card companies tend to provide high credit limits on business cards than on personal cards. If you are hoping to use your credit card as a means to get startup capital, a personal card cannot cut it.
But let us face it; not every business needs many dollars in spending money. If you are planning to use your card for small transactions only, a personal credit card can be completely adequate. Personal credit cards are reported to the credit agencies under your name, so if a worker uses the card to charge thousands in personal transactions, you are yet individually liable for that debt.
Features
Usually, lower credit limits, depending on creditworthiness
Accelerated rewards for classifications such as groceries, gas, dining or entertainment
More choices for flat-rate rewards
Some issuers like American Express, let you set spending limits for authorized users
You may ask your issuer to lowest your credit limit, but this can lower your credit score
Helps you build your personal credit score as long as your issuer reports payment activity to credit bureaus
Does not help you build business credit
45-day notice for interest-rate increases
Credit card bill must be mailed a minimum 21 days before the due date
Late fees capped; limitations on over-limit fees
Payments above minimum applied to higher-APR balances
Personally, responsible for debt incurred, along with any cosigners
Pros
Looser application limits
More protections for borrowers
Personal credit score growth
Cons
Stricter personal credit needs
Less valuable rewards payouts
No impact on your business credit score
Want to improve your credit score?
Whether you need credit repair services or need to establish and build business credit, YMA Wealth Management Group has the perfect team of experts ready to help you.
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