Here’s What Happens When You Max Out Your Business Credit Card

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Business credit cards can be a great way to build your credit and earn rewards. But if you max out your business credit card, it could prove costly. Learn why. 

Maxing out your business credit card happens when you reach your credit limit — the maximum amount your card issuer will let you spend. So, if you have a credit limit of $10,000 and the balance on your card reaches $10,000, or just below it, you’ll have maxed out your card.

As a small business owner, you may reach a point where maxing out your business credit card seems like your only option. However, maxing out any credit card, whether business or personal, can have an impact on your finances, your spending, and your ability to borrow money. Here are three things that will happen if you max out your business credit card.

1. You won’t be able to use your card to spend more

Once you reach the limit on your credit card, your transactions will be declined if you try to use it. You might be able to call your card issuer and ask for a higher limit, but there’s no guarantee your request will get approved. It helps if you have a strong record of making on-time payments and a good relationship with your bank.

Many small businesses experience cash flow challenges, particularly if they don’t have a business emergency fund to cushion against a late payment or other unexpected issue. A business credit card can come in handy in this scenario as it can tide you over. But it is a short-term solution that has fixed limits. Once you’ve maxed out your card, you’ll have less wiggle room in terms of how you can cover expenses.

READ MORE: Best business credit cards

2. It could cost you in interest payments

If you don’t pay off your balance each month, you’ll accrue interest. That’s assuming you don’t have a business credit card with a 0% promotional APR, in which case you’ll have a set interest-free period. Interest on credit cards can be much higher than other forms of credit, and if you’ve maxed out your card, the costs can add up.

For example, if you carried a balance of $10,000 on a card with an APR of 20% for a whole month, the monthly interest would be around $165. The total interest you pay depends on when your charges occurred and how many days are in your billing cycle. The card issuer will use your average daily balance to calculate interest charges. Let’s say you started with a balance of $5,000 and spent another $5,000 on the 20th day of a 30-day cycle. In this case, your average daily balance would be $6,666 and you’d pay around $110 in interest that month.

3. It could impact your business credit score

Credit utilization is the ratio of how much you owe on your credit card against how much you’re able to borrow. It’s one of the most important factors in calculating a personal credit score. Business credit scores are calculated differently, but credit utilization still plays a role. Experian, one of the three business credit bureaus, recommends keeping your credit utilization below 30%.

A good business credit score could make it easier to borrow money, which can be a challenge for small businesses. It could also help you negotiate better terms with your suppliers and make a difference when you’re renting a property or applying for insurance. Dun & Bradstreet, who specialize in business credit scores, focus more on payments. Even then, debt is a factor, so maxing out your card could impact your score.

On the topic of credit scores, it’s also worth noting that, in many cases, maxing out your business credit card will not impact your personal credit score. Most credit card companies do not report business credit card balances to personal credit bureaus. Check to see what your card issuer will report. In many cases, as long as you don’t miss any payments — which would have an impact — your personal credit won’t be affected.

Know how business and personal credit cards differ

Business credit cards don’t always work in the same way as personal cards. On the positive, they often have higher credit limits. On the other hand, you may not benefit from the same consumer protections. While many business credit card issuers offer the consumer protections in the 2009 Credit Card Act, they don’t have to. If you are close to maxing out your business credit card or missing a payment, call your card company to find out what late fees you may pay and whether there’s a penalty APR.

It isn’t always easy for a small business to access the credit they need, but it could get harder if you max out your credit card or miss a payment. If you’ve already maxed out your card, it’s important to understand why. If it’s a cash flow issue, you might look at urgently chasing any unpaid invoices and cutting unnecessary expenses. If there’s a deeper problem, don’t ignore it.

Moving forward, try to map out your spending at least a couple of months ahead so you can identify issues in advance. If you’re able to build an emergency fund to give yourself a buffer in the future, even better. If that’s not feasible, you might be able to apply for a small business loan or increase your credit limit before you reach it. Maxing out your credit card can happen, but avoiding it could save you both stress and money.

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