As many of us heard from our parents and other mentors, borrowing money from a financial institution comes with responsibility and should be taken seriously. Managing how you pay back that money impacts your credit score: hopefully for the better, but repayment issues can lower that score.
The same applies to a business. Most small businesses, specifically, rely on outside money to nurture growth and two regular forms of this helpful funding are a line of credit and a credit card, respectively.
According to Investopedia, a line of credit is a “borrowing limit that can be tapped into at any time. The borrower can take money out as needed until the limit is reached, and as money is repaid, it can be borrowed again in the case of an open line of credit.” A line of credit is different from what’s called a “conventional” loan where you borrow a certain amount and pay it back in fixed installments.
On the other hand, a credit card lets you make purchases that you pay back at least a minimum amount (but, as you likely know, you can pay more than that, including the full balance).
Depending on the borrower's qualifications and credit scores, both the line of credit and the credit cards can either be secured or unsecured debt; learn more about the definitions of these types in this article here.
To qualify for a business credit card, there are the financial and legal requirements you need to meet. Here are the basic requirements for applying for a credit card:
And here are the steps to applying for a business credit card, according to the financial gurus at Nerdwallet:
To qualify for a line of credit:
The first step in a credit card application is to find a fitting credit card for your needs. After selecting a suitable credit card for you, you provide details about your income, personal information, and information about authorized users. The personal information may be your name, date of birth, housing situation, social security number, time at current residence, and your housing situation.
Applying the line of credit is almost similar to that of a credit line, though they mainly consider your credit scores.
Your credit reports may face a hard inquiry from the lender. As a result, your credit scores may be temporarily lowered.
Making frequent late payments also lowers your health credit card.
Also, if you use a tiny portion of the amount available or fail to use your available credit, it may improve your credit scores. It may lower your rate of credit utilization.
With the current financial crisis, it is not easy to manage monthly repayments. For you to efficiently plan and strategize your loan repayments, you have the following tips for you:
If the line of credit and credit card are not a good option for you, you can explore other borrowing alternatives. They include:
You realize that both the credit card and line of credit are almost similar types of revolving credit. They both approve you to receive up to a specific limit.
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