For decades, credit cards were seen as kind of a risky way to make purchases. Card issuers would sometimes move around your payment due dates, and charge interest based on an obscure method called double cycle billing.
But then came the CARD Act of 2009, a law which put an end to these and other questionable policies. Yet buried in the details of this law was an interesting exception. Business credit cards are exempted from many of the protections of this law, which was created primarily to protect consumers.
Are Business Credit Cards Now Riskier?
At the time the law was passed, some industry observers predicted that there would be two classes of credit cards. The theory was that consumers would be able to enjoy all of the protections of the CARD Act, while business card users would remain trapped in the dark ages of the credit card industry.
Thankfully, most credit card issuers have voluntarily extended many of the protections of the CARD Act to their lines of business credit cards. This move may not simply be altruistic, it may also reflect the increased cost of creating two entirely different sets of policies for their lines of business and personal credit cards. Furthermore, once the cardholder protections afforded to consumers became the industry standard, banks that failed to offer them to their business customers would be seen unfavorably, since many business cardholders also hold consumer cards.
For example, there are no major small business credit cards that still have double cycle billing, or due dates that change each month. All major business credit card issuers have also dropped the so-called universal default policies that previously allowed them to raise your interest rates on existing debt solely based on new, negative information in your credit report. (You can see where your personal and business credit profiles stand for free on Nav.com.)
Upgrade Your Business Credit Card: See Top Cards Here.
What Risks Remain?
Bank of America is the only major credit card issuer to fully extend all of the provisions of the CARD Act to its line of small business credit cards. However, other major card issuers still reserve the right to raise your interest rates on existing balances, and may allocate payments to the balance with the lower interest rates first, followed by the highest, resulting in higher interest charges. Finally, some credit card issuers may still make changes to the terms of its business cards without giving the mandatory 45 days of advanced notice required for consumer credit cards.
Tricks to Manage the Risks
With most major credit card issuers voluntarily extending many of the CARD Act protections to their business cards, you don’t have as much to worry about as you did in the early 2000s. The remaining risks are more manageable, especially if you use your small business credit cards responsibly.
For example, the best practice is to always avoid interest charges by paying your entire monthly statement balance in full. If you do this, then you have nothing to fear from either arbitrary interest rate changes, or from payments being allocated to maximize your interest charges. And at the very least, you should not owe so much on your business credit cards that any of these changes would prevent you from being able to keep up with your payments. Missing a payment on a business credit card can have consequences for your personal credit scores and your business credit scores, since some issuers report derogatory information like missed payments or defaults to both business and personal credit bureaus. (Here’s a quick guide to the major issuers and their credit reporting policies for business cards.)
By carefully managing your small business credit cards, you can enjoy many of the protections afforded to consumer cards, and avoid getting burned by any of the remaining risks.