So, you’ve made one of your first huge decisions in managing your business finances. You’ve decided between a debit or credit card! (internal link – debit or credit card?) Whether you want the ability to build a solid credit score or want to have to budget yourself better: you’ve reached a point where you know what payment method will best benefit you.
However, there’s something else you may want to consider! What type of debit or credit card should you use?
Now, it’s not necessary to use a specific ‘type’ of card. You can always just comfortably use the standard versions of either a credit or debit card. But it is important for you to know that there are many options out there, each with different benefits or attractions.
Opening a credit or debit card is an investment in your business. So, like any investment, it depends on what you are looking to gain or expand on. For example, if you are considering a credit card – why? Is your intention to spread the cost of a purchase, build your credit history, or cover an unexpected expense?
Or alternatively, with a debit card, do you want a predetermined limit of funds to combat overspending? Or are you someone who prefers to manage your money yourself? This article will break down seven different card types down in order to give you all the information. You can then make an informed decision and secure a card that works best for you!
Different Types of Credit Cards
- Standard Business Credit Card
This type of credit card is the most basic one can have. This means that there are no extras or dedicated rewards offered with this card. The user of the card is simply offered the usual pre-arranged line of credit afforded by the loan provider.
The user of this card is also, as standard, expected to pay off their bill monthly. This can either be in full or in paid instalments, however, the latter option often incurs interest at a percentage of the original credit amount. This must also be paid off – high interest rates can often be a dissuasion from credit cards, so make sure you shop around to get the best rate!
The basic nature of this card may not seem like a huge draw, especially compared to the other cards on this list. However, it is the easiest to understand at face value. The simplicity and ease of management makes a standard credit card a great option for anyone who may be nervous about credit or a first-time user in a business capacity.
It can also be a great option for anyone who is wanting to build up a solid credit score for the future, but also aren’t too bothered about earning rewards at that current point in time.
- Cash Back or Rewards Credit Card
A cash back credit card is a reward-based card. This means that every time you make a purchase with this type of card, you get a small percentage of the cost of each purchase back as a reward.
You can earn rewards on a range of different things and in a range of different ways. It all depends on the specific card you choose, and the provider you end up going with. For example, a popular type of card is through earning cash back rewards through the offer of a flat rate return on every purchase.
Some cards allow you to choose specifically what you earn your cash back on. So, you can really use it to your benefit and choose stores you frequent for your business! Others offer higher percentages of cash back for certain types of purchases, like travel, dining, groceries, or gas.
The standard rate of return usually ranges between 0.25% to 2%. You may even be able to get a temporary higher cash back rate as an introductory offer, usually for the first eighteen months. Make sure you consider this when signing up, as it may be worth shopping around to find the best deal overall.
There are many benefits to this type of card. A great example being that they can help you simplify your finances, earn rewards on spending, and take advantage of extra perks that debit cards don’t offer.
If you are running a business that makes a lot of purchases from specific places or vendors, this can become a great benefit. This is because cash back credit cards can help savings add up and help you earn a passive income return on necessary business purchases.
- Secured Credit Cards
A secured credit card does not inherently have any more fraud security than a standard credit card, despite what the name may insinuate! No, a secured credit card is actually a card that is ‘secured’ by a cash deposit. Most credit cards are ‘unsecured’, meaning you don’t have to put anything down in order to use it.
The difference between a secured and a standard credit card is simple; the limit of the line of credit on a secured credit card is the same as the amount as the deposit you put on the card. Therefore, this type of credit card is closer to a prepaid debit card in theory. There is a possibility of recouping the deposit, but only if you are always prompt in paying your bill every month.
This payment is a one-time deposit (and therefore credit limit), and is one of the easiest types of credit card to be approved for. It is easier to get approved for because you are offering collateral in the form of your deposit.
This is a good option for people who want a credit card but struggle to be accepted for one. This can be because they don’t have a credit history and need to build it from scratch, or because they have a bad or damaged credit status.
A secured credit card is beneficial in the sense that it sets a limit that you will feasibly be able to pay back, as shown by your initial deposit. It is also very helpful to keep you on budget. However, the line of credit is not as large as other credit cards. This may be limiting for some users, so it is important to keep that in mind.
- Zero percent APR and Low-Interest Credit Cards
While they may seem similar at first glance, interest and APR are each slightly different entities. According to the Truth in Lending Act enacted in the UK in 1968, both the interest rate and the APR must be disclosed before the customer before they are extended the offer of any credit.
Interest rates are the annual amount that a credit provider charges a borrower. It is calculated as a percentage of the amount loaned overall.
APR, on the other hand, is almost always higher than the interest rate. This is because APR is not just the annual amount charged, but it also consolidates other various costs incurred when money is borrowed.
Now, knowing this difference, you can freely consider the many credit cards available that offer zero percent APR or low interest rates. The offer of zero percent APR is usually for an introductory set period of time – often around eighteen months as standard.
This kind of credit card can serve to reduce interest on any long-term loans you may be thinking of utilising. It may also assist you in spreading the cost of any big purchases you may be thinking of making for your business, therefore making these things more accessible to you if they may not have been previously.
There are some limitations to a 0 percent APR card, such as the fact that some 0% APR cards let you avoid interest payments on purchases and balance transfers, but others only extend their offers to one or the other. You should also make sure that you are able to pay off this type of card monthly. if you don’t do this, some cards will return to the original interest rate of that provider, which can be a lot higher than you may be expecting.
- Balance Transfer Credit Cards
Balance transfer credit cards can be particularly helpful for you and your business if you are currently in existing debt. A balance transfer credit card is exactly what it sounds like. It allows you to transfer existing debt from one card to a new one. You can then begin to pay off your debt from the new card.
There are a few different types of balance transfer credit cards available. You can have a no-fee balance transfer, which means you don’t have to pay any fees to consolidate your debt into one place. According to Money Supermarket, the fee to transfer your debt can often be around 3% – and sometimes higher – on the best balance transfer card offers.
However, the interest rate on any transferred purchases may only be reduced, as is common on this list, at an introductory period of around eighteen months. The cost of interest may negate the no-fee transfer, so weigh the pros and cons carefully here.
You can also get a balance transfer and purchase card. This is a card that combines a low interest rate balance transfer with low interest on new purchases into one card. However, the 0% periods could be different for Balance transfers and purchases so check the small print.
This is a beneficial credit card to use if you are not just transferring debts to pay them off but need to continue to spend from the same account.
Balance transfer cards are a great option if you plan to pay off your debts quickly. By having them all in one place, you don’t have to constantly manage multiple accounts making it more efficient and easier to keep track of. It may also end up that having one account nets a lower interest fee than multiple account fees added together.
However, a drawback is that you may need pre-existing good credit to qualify for one of these cards. If you have a lower credit score, it can still be possible to get a balance transfer account, but you may not get the best deal possible.
Different Types of Debit Cards
- Standard Debit Card
A standard debit card is the basic iteration available. This card is connected directly to your business current account and the funds within it. As with any debit card, you can only spend the funds that you have available in your account. There is no link to any line of credit or loan-based system unless you have a pre-arranged overdraft.
Usually, with a debit card, you can pay money in and out from an ATM, or even in person if your bank offers brick and mortar services. There is also often a daily limit for the amount you can use on a debit card per day for security reasons.
Most businesses and retailers in the UK accept most widely available debit cards. Most debit cards will have a credit network like VISA or Mastercard logo on them, meaning that that form of payment is accepted in most businesses and places.
A standard debit card is a very safe option for most businesses, as it moderates spending and ensures that you stay within your budget. It is a lot harder to get into debt with this type of card. However, it can be a detriment to users who may want to take out a loan or need a greater accessibility to funds, as there is no line of credit afforded.
- Pre-paid Debit Card
A pre-paid debit card is one that can be pre-loaded with a set amount of funds that you pay. The amount you load onto a card is completely up to you, but it has to be from your own account balance. This allows for a focused control over payments and expenses as there is clearly a much stricter limit on the funds available on the card.
You cannot spend more than you put on at one time. This sets a very clear budget, especially if you are entrusting the card to an employee and want to manage their spending closer.
There are many benefits to a pre-paid debit card. They are rechargeable, and more funds can be added once one lot has run out. It can be used in exactly the same way as a normal debit card in terms of paying for things and withdrawing money from ATMs. You also don’t need a credit check in order to use one, and they often include digital tools for managing your finances and typically have low fees.
However, also like standard debit cards, pre-paid debit cards do not increase credit scores as there is no line of credit being used. This may be a drawback for some users, especially if they don’t currently have a strong credit score.
Conclusion
While this is not an exhaustive list of debit and credit cards that can help your business, it is inclusive of some of the most widely and obviously helpful to use. Like anything concerning the money involved in your business, it is important that you undertake your own research into each of these cards.
You can use comparison tools online such as uSwitch or GoCompare to get the best view of what’s on offer at different banks.
The world of business banking can seem complex, but when it comes down to it, you just need to step back and analyse your goals and targets. This will help you choose a card that offers you more pros than cons and can help you on your way to making a great profit!
Related Articles
- How to Apply for a Loan
- Do You Need a Business Bank Account?
- How to Choose the Best UK Business Bank Account
- How to Switch Business Bank Accounts
- How To Save Money With Your Own Business
- SIC Codes: A Complete Guide
Deciding what type of card to use for your business can be a tough decision. Let us here at Count help you! Contact us here today.