Editor’s Note: American Express is a partner of Fundera.
Who doesn’t love a good credit card bonus?
If it means a cool extra thousands of bonus points or hundreds of dollars back in your bank account, it’s hard to resist a great welcome offer on a business credit card.
But these credit card bonuses don’t just come for free—you have to spend to earn them. And for on some sign-up bonuses, you have to spend a lot to qualify for the extra pile of cash.
So the next time you’re enticed by a shiny new sign-up bonus, ask yourself this: “Does this offer fall in line with my regular spending habits?” If the answer is “no,” then you probably should steer clear of the bonus.
When you come across a great welcome offer on a business credit card, the first thing you should do is read the fine print.
Because most great business credit card bonuses come with this requirement: spend a certain amount of money in a specific amount of months in order to qualify for the bonus.
Take a look at one of the best business credit card offers on the market: the Business Platinum Card from American Express. You can get 50,000 Membership Rewards points… If you spend $10,000 in 3 months. You can also get an additional 25,000 points after you spend an additional $10,000 on all qualifying purchases in your first 3 months of membership.
Sounds pretty great, right?
Well, this is really only a good welcome bonus for businesses that already spend $20,000 every 3 months. If you don’t ever spend this much in 3 months and you change your spending habits to meet the welcome bonus, then you’ll just be spending on things that you otherwise wouldn’t purchase for your business.
And if you didn’t have a reason to make these purchases before you had your credit card, odds are your business doesn’t need to be buying them now.
On the other hand, if you can confidently tell yourself that your monthly spending habits align with a credit card’s bonus, then you probably won’t be overspending to meet a welcome bonus—and you’ll just be saving for your business. Or, if you know that in the coming months you have to cover a lot of expenses for your business, it might make sense to sign up for a great welcome bonus to earn more on your necessary purchases. And once you’ve covered all these costs and earned your welcome bonus, you can rein your spending back in to its normal level.
Hefty business credit card bonuses can make you overspend. But wasting your hard-earned cash isn’t the only risk that comes with changing your spending to meet a credit card bonus.
If you significantly change your spending habits to meet a welcome bonus, you might not have enough cash on hand to pay your credit card issuer back as time goes on… Especially if your increased spending doesn’t match up with how your business is performing. If you spend more and your business brings the same amount in each month—or maybe even less than usual—you run the risk of not being able to pay your minimum due on your business credit card or your monthly balance on your business charge card.
And as you know by now, not being able to repay what you owe on your business credit card has consequences. Yes, you can rollover your balance on a credit card each month, but your balance will accrue interest along the way. Most business credit card issuers charge a steep penalty APR when you can’t pay back. And in the worst cases, if you miss a couple of payments in a row, your credit score will take a dive because of it.
When you use a business credit card, it’s always important to keep an eye on your debt-to-cash and debt-to-available-credit-limit ratios. If spending more to meet your welcome bonus really overextends your business, you’re putting yourself at danger of not being able to pay those bills back.
As you might know by now, there’s a secret formula that’s behind your credit score. Well, it’s not that secret—we don’t know exactly how credit reporting bureaus calculate your credit score, but we have a good guess at what matters for it.
Here’s how a FICO credit score is broken down: 35% payment history, 30% amounts owed, 15% length of credit history, 10% new credit, and 10% credit mix.
And when it comes to spending on your credit card to meet a welcome bonus, the “amounts owed” category is what we’re paying attention to. This category reflects the total amount of credit you currently owe—or have outstanding. But amount owed also reflects the ratio of your current outstanding debt to your set credit limit. You might know your “amounts owed” as your utilization ratio—which is just your ratio of amounts owed.
If you’re spending a lot on your credit card to earn your welcome bonus, your credit utilization might be too high—and your credit score will suffer because of it. In general, you don’t want to have your credit utilization ratio above 30% at any point in a billing cycle. But if you spend more to meet a welcome bonus, you could easily tip your utilization ratio over this point and seriously ding your credit score.
Not all business credit card bonuses fit every kind of small business owner. If you only spend a little each month on your credit card, chances are that the best credit card bonus on the market is one that you’ll never actually meet without overextending your business to get there.
With that being said, there is a credit card bonus that can perfectly fit your spending habits.
To find that bonus, know what your average monthly spend is before you start your research. If you usually spend about $5,000 in 3 months, then there are a few great business credit card bonuses out there for you—like the Business Gold Rewards Card from American Express, the Capital One Spark Cash for Business, or the Chase Ink Plus.
If you’re not a big spender each month, you might want to limit your search to business credit cards that qualify you for an offer over a longer period of time. For instance, the SimplyCash Plus from American Express offers a $200 statement credit once you’ve spent $5,000 in 6 months. Or, you might want to consider American Express’s Blue for Business Credit Card—you’ll get 10,000 Membership Rewards points when you make just one purchase in the first 3 months of cardmembership. Plus, you’ll get another 15,000 points when you spend $5,000 in 6 months.
And if you do spend a lot on your business each month, then you might want to sign up for the Business Platinum Card from American Express—one of the best offers on the market.
There is a business credit card offer out there for everyone. But there are a lot on the market that aren’t for everyone, so be wary of those that require a lot of spending to get any benefit.
The bottom line?
When it comes to the right credit card bonus, it’s all about finding the bonus that matches your habits, not changing your spending to meet the bonus.
Great advice here - I think most credit cardholders are just focused on getting the bonuses because issuers do such a good job of making them attractive. Thanks Georgia!
Great advice here. It's really important to keep in mind how your spending habits would change depending on your credit card -- absolutely agree.