Credit Cards – Personal versus Business credit cards

Most people in US prefer cashless transactions for their convenience which has led to the use of credit cards for normal transactions as well as for online purchases. These credit cards not only help people to travel freely without having cash in their pockets, but also help them to build up a good credit history which gets reflected in their credit score. Mostly credit cards are of two types – Personal credit cards and business credit cards. Both of these cards have their own advantages and disadvantages and are meant for different targeted groups.

If you want to build up a good credit history for yourself, then you need to go for a personal credit card. Again Personal credit cards are of two types – Secured credit cards and unsecured credit cards. Secured credit cards are for those who either have a very bad credit score or do not have a credit history at all. In case of secured credit cards, you need to maintain a cash collateral with the bank or the company from which you want to have a secured credit card. The amount of money you keep with the credit card company is the credit limit on your card and this credit limit increases with the increase in cash collateral with the bank or the credit card company. Secured credit cards normally have a low rate of interest and have an annual fee charged on it. If a person with no credit score make purchases with these cards and repay it back regularly, he develops a good credit history with the card which gets reflected in his credit report and as a result of which his credit score increases. Now based on the repayments made on the secured credit cards, you may qualify for unsecured credit cards at a later date. Unsecured credit cards on the other hand do not require cash collateral and the credit limits on these cards vary between cards. Unsecured credit cards require a good or an excellent credit score and it comes with a relatively high rate of interest as compared to secured credit cards. Moreover, unsecured credit cards offer benefits like zero APR balance transfer for a period of 6 to 12 months and cash back on purchases.

However, personal credit cards generally have a much lower credit limit as compared to business credit cards. Personal credit cards offer credit limits up to $10000, while in business credit cards the credit limit can go up to $50,000. Again it is compulsory for a personal credit card holder to make a monthly payment, but it is not for a business credit card holder. If you have a small business, you can use either go for a personal credit card or a business credit card depending upon your requirement. Since a business credit card has a higher credit limit, it helps companies to cover unforeseen expenses and overcome financial crisis. These business cards also come with zero annual fees and low rates of interest. However, the interest while the interest on personal credit card ranges from nine to twenty percent, in case of business credit cards, it is twelve to twenty-five percent. Moreover, the application process in case of business credit cards are much more stricter than those of personal credit cards because of the higher credit limits associated with these cards.

Another type of business credit card is the corporate credit card. These cards are very difficult to obtain and the organization need to have a good credit history to have such a card. Moreover, the Corporation needs to have a good profit history for two to five years and the credit limit on these cards may range from $50,000 to several million dollars.

So while applying for a credit card, you should first judge your requirements. Whether to go for a personal credit card or business credit cards depends on your needs. Even if you need a credit card for your business, you can use a personal credit card, if you do not have a large requirement. However, if you want to maintain one business credit card to meet emergency business requirements, you can always do so.

Debt Validation: The most important instrument against creditors and collection agencies.

Debt validation refers to the debtor’s right to challenge the debt which the original creditor or the collection agency is asking him to repay. Whenever, a creditor or a collection agency calls you up over phone to repay a debt, he should send a debt validation notice to the debtor within five days from the date of first communication. However, if the first communication is in writing, the letter which is sent to the debtor includes a debt validation notice. This debt validation notice is send to the debtor as per the rules of the Fair Debt Collection Practices Act, and is intended to let the debtor know his right to dispute the validity of the debt within 30 days of the date of communication.

You should dispute the debt in writing within 30 days from the date of first communication else the debt is accepted to be valid and the collection agency or the original creditor can take steps to recover the debt from you. However, if you validate the debt within 30 days from the date of communication, the collection agency or the original creditor must send you proper validation of the debt within 30 days from the date of receipt of your debt validation letter else the collection agency must cease collection of the debt. After receiving your request for debt validation, the collection agency must send you the proof that the debt has been sold off to him by the original creditor and presently he owes the debt.

Debt validation letter can also be send to the collection agency if you find the name of the collection agency listed in your credit report against some debt. In such case also, the collection agency must send the validation within 30 days from the date of receipt of your debt validation letter. However, if they do not validate your debt within this period, you can send dispute letters to the credit bureaus asking them to remove the listing from your credit report.

It is always advisable to send all debt validation requests in writing and under certified mail with return receipt requested, to keep a record in case the collection agency or the original creditor later does not acknowledge the acceptance of your debt validation letter. This return receipt may strengthen your case if the collection agency or the creditor later sues you to the court without validating your debt.

Cosigner obligations on loans

Most lenders require a co-signer with a good credit history to sign your loan agreement before they process your loan application. They ask for co-signer because they always try to minimize the risk associated with the loan by transferring the risk to the cosigner. In other words, the co-signer acts as a guarantor to the debt that the actual debtor is opting for.

So it is always advisable to know your obligations before you co-sign a loan agreement. Federal law also requires the creditors to clearly explain the obligations to the cosigner. Mostly people with a bad credit score require a co-signer and so your good credit score may be at stake if somehow the actual borrower does not repay the loan. It has been seen that there are certain lenders who asks the co-signer to repay the debt as soon as the original creditor goes default. Thus, co-signing a loan agreement would mean that you are taking the risk that the original creditor is not willing to take.

You should therefore sign a loan agreement only if you are sure that you will be able to repay it in case the original debtor fails to pay it back. You may be required to pay back the full amount of the debt including the late fees and other charges which may arise from time to time. But in case you too cannot afford to pay back the debt, the creditors and the collection agencies my report it to the credit bureaus who in turn will list the debt in your credit report. This will lower you good credit score which you have used to become a co-signer.

However, in spite of this fact, there are situation where you have to co-sign a loan agreement. For example if the loan applicant is your son or other close family members, you may have no other option but to co- sign the agreement. But in such situations you may negotiate with the creditor to limit your obligation only to the principal balance of the loan. But in such cases too co-sign the agreement only after you are sure that you are able to pay it off.