Business credit cards are a crucial financial tool for business owners in Canada. Business credit cards keep your personal and business expenses separate, making it easier to manage finances, prepare tax documents, and keep cash flow flexible.
Getting a business credit card can be more difficult if you have bad credit, but it isn’t impossible. Financial institutions have options to help you get started, and once you have a card you can begin to rebuild your credit.
Understand your credit situation
The first step is to know and understand your credit score. Get your credit history from one of the big credit bureaus such as Equifax or TransUnion. Review your report to ensure there are no errors. Make sure you recognize all the creditors listed in your credit report, and if there’s a debt listed that you don’t recognize, report it.
Eligibility for a business credit card typically requires a score of 670 or higher, although cards with rewards programs and perks might require a higher credit score.
Secured business credit cards
A secured credit card helps you rebuild your credit. It acts like a regular credit card, where you borrow money up to a certain limit and pay it back over time. If you carry a balance, you’ll pay interest on what you owe.
The main difference between a secured credit card and a regular credit card is with a secured credit card you’ll provide a security deposit. That deposit usually equals the credit limit. The deposit protects the credit card issuer if you default on your payments.
Your purchases aren’t deducted from the deposit. Instead, that deposit is held and, if you close the card and have fully paid off what you owe, the issuer will return the security deposit.
Because the card acts as a regular credit card, the issuer will report your payment history to the credit bureaus. If you manage the secured credit card well, you can rebuild your credit.
Prepaid business credit cards
Prepaid business credit cards are another option, although these won’t help you rebuild your credit. With a prepaid business credit card, the card functions more like a debit card. You put money on the card and can then spend that money. You’re not borrowing any money to pay off the card, instead you’re using your own money.
While a prepaid credit card won’t help you build credit, it can provide you with an important option when you need access to a business credit card for business-related purchases.
Improve credit over time
It’s possible to improve your credit score so you can obtain an unsecured credit card. Pay your bills on time and reduce your debt. Rather than applying for a credit card with a high limit, start with a smaller limit and manage your debt. Or apply for a small business loan to rebuild your credit.
As your credit score improves, your credit card options will expand.
Final thoughts
Having bad credit won’t automatically prevent you from getting a business credit card. There are options available to you, which can help you build your credit now. The better you manage and repay your debt, the better the impact on your credit score.
