We suspect that the Capital One Business Credit Card is the most popular business credit card in America. Among the business credit cards that are popular, another one chosen by many small business owners is the Discover Business Card. So how to they compare, how are they the same and how are they different?
This is where you might be expecting us to talk about the rates and rewards. We might even talk about how they are not protected by the CARD Act (which is true but it’s also a terrible argument for not using business credit cards) but all of these discussions miss the point. Here at the Business Finance Lounge we try not to hang around in the shallow end of the pool. For us to talk about rates and rewards would be the equivalent of hanging out at the shallow end of the pool. We could be completely clueless about things like business financing, unsecured business funding, FICO scores, small business loans, and working capital and we could throw together a blog about the rates and rewards on these cards. We could sound real smart and name our blog “how to compare business credit cards”.
These two business credit cards violate the most important rule about properly borrowing money, obtaining working capital, and the use of credit cards.
THE PROBLEM WITH THESE TWO BUSINESS CREDIT CARDS IS THAT THEY BOTH REPORT TO YOUR PERSONAL CREDIT REPORT JUST LIKE A PERSONAL CREDIT CARD DOES!
Why does that mattter? We all know how important credit and FICO scores are but we often don’t realize how our behavior and habits impact our credit profiles. 30% of your FICO score is determined by your utilization percentage. Utilization % is the ratio between your credit card balances and their credit limits. It’s calculated in two ways, line by line and aggregate. In other words, it matters what your utilization percentage is for each of your credit cards and it also matters what the total utilization is across all your credit cards that are on your credit report.
So if you use personal credit cards (like most small business owners do) then you will hurt your FICO scores. You’ll damage your credit. You will not create any separation between your personal and business credit. Since the Capital One business credit card and the Discover business card report to your personal report then this same problem happens when you use these business credit cards too. It may be more common than you think.
The two main reasons people don’t reach their full credit potential is because of late payments and excessive utilization. I’ll give you some perspective. Last week we had 150 requests for financing. That means that we had 150 people who spent $46 to set up a credit report for us to help them understand their business financing options. Most of them were looking for working capital in the form of unsecured business lines of credit. 62% of those people were graded either a D or an F by us. In order to get an F grade you must have excessive late payments or derogatory items on your credit report. If you are graded as a D then that means you either have 3 or less derogatory items or you have a utilization over 30% or both.
This means that that utilization issues are very common. It’s not the only credit issue that small business owners face but it is one of the two biggest credit problems they face. This problem will negatively impact your ability to obtain the financing you need both now and in the future. Using the Capital One business credit card or the Discover business card are not a good idea. If you use them you will hurt your FICO scores and credit profiles. This happens because they report to your personal credit and the balances will hurt your utilization. You would be much wiser to select a business credit card that does not report to your personal credit report.