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Credit Cards, Banking, and Cash Back

Rob Berger

Using Credit Cards to Fund a Business Start Up

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Using credit cards to start a business is nothing new. In fact, I’ve got a friend who is using a 0% balance transfer business card to fund a product based business he’s just started. When all is said and done, he’ll be in credit card debt of more than $30,000. Now in his case, he has the means to pay off the credit card even if the business fails. But as reported this week in the Washington Post, some small businesses are starting to drown in credit card debt.

So in this article we’ll look first at why people are turning to credit cards to finance their businesses. As it turns out, credit cards do offer a number of benefits to small business. Then we’ll look at how to reduce some of the risks of credit card financing.

The Rewards of Credit Cards for Small Businesses

There are four basic reasons many entrepreneurs turn to credit cards to finance a small start-up.

First, accessing cash through credit cards is easy and convenient. You can now apply for credit cards online in a matter of minutes. And if you have solid credit history, you can easily qualify for tens of thousands of dollars in credit.

Second, many credit cards come with 0% introductory rate offers on both purchases and balance transfers. These offers enable new companies to finance start up costs without paying interest. With some cards, you can get a 0% interest rate for up to 21 months.

Third, business and personal cards come with many rewards and cash back offers. It’s not at all uncommon to find cards with cash back offers on gas, office supplies, and computer purchases. These cash back offers can go a long way for a new company.

Finally, other means for raising capital have become harder to access. With the credit crunch we’ve experienced over the last year, it has become harder and more time consuming to obtain home equity lines of credit or small business loans. As a result, more and more business owners are turning to credit cards to get them through a cash flow crisis.

Avoiding the Pitfalls of Credit Card Financing

The ease of obtaining cash via credit cards also presents the biggest risk. More and more business owners are getting in over their heads as their credit card debt increases. So what are some of the ways you can reduce the risk that this will happen to you? Here are a few suggestions:

First, don’t spend more money just because you are putting it on a credit card. Study after study shows that we tend to spend more money when we use credit cards than when we pay with cash. If you’re using credit, ask yourself if you’d still make the purchase if you were paying with cash.

Second, make business decisions independent of your source of financing. Some folks tend to take bigger, unjustified risks if they aren’t using their own money. While the credit card company may be funding your business at the start, you’ll eventually be paying the tab one way or another.

Third, budget, budget, budget. Budgets are important for personal finance, but they are absolutely critical for a business. Set out your budget before you starting spending money and raking up credit card debt.

Finally, don’t get carried away with credit card rewards. Sure the cash back offers and discounts are nice, but they should never be the motivation behind the purchase.

Business and other credit card offers can be a great way to finance a new company, so long as care is taken not to over extend yourself.

How Credit Cards Are Made

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Have you ever wondered how a credit card is made?  I never really thought about it before which seems rather strange considering how deeply involved these little rectangular objects are embedded into our lives.  In fact, writing a check seems somewhat archaic now with the invention of debit or credit cards and your online checking account is probably seeing more debit card transactions than anything else.

Credit cards are created by melting and pressing together several layers of plastic material through the use of heavy machinery.  All totaled, it actually involves 5 steps to create a credit card.

1. Melting, Compounding and Extrusion Molding – The core is made from polyvinyl chloride acetate (PVCA) that is melted and then blended with other additives. The molten components are then forced through a flat die (hole) by an extrusion machine to create flat sheets of the blended plastics. The sheets are stacked and continue to roll along until cooled at which point a saw or electric sheers cut the sheets into smaller sheets and then stored.

2. Laminate Film Creation – Laminate film is used to coat the plastic core stock and is created in a similar extrusion process except that a casting roller may be used to create a thin film as compared to the plastic core.

3. Printing – Plastic core is then printed with text and graphics through a process called silk-screening. The magnetic strip is added to the back by hot-stamping it to the card.

4. Laminating – The card is now ready for the laminating film to be adhered to it.  Basically, the sheets of core stock are fed through rollers with the laminate film being rolled along with it, above and below. The three sheets are then fed into vacuum shoes which hold the three pieces together while on their way to the tacking station. The tacking station contains infrared heat lamps to warm the top and bottom of the core stock and thereby allowing the laminate to affix to it. The heat and the radiant energy being focused by reflectors allows for smooth bonding to the core stock.

5. Die Cutting and Embossing – Once the lamination is complete, the finished sheets are sent to the die cutting and embossing machines. One sheet will yield 63 cards when processed through the die cutters.  Once the individual cards are cut out, the embossing machine stamps each card with its’ own account number.

After the cards are embossed, they are all run through a quality control process to ensure the stamping is legible and that there are no duplications of account numbers.  Creating credit card account numbers is it’s own unique process and you can actually verify the credit cards in your own wallet are real pretty quickly.

So there you have it.  Now you know how a credit card is made and why it looks are frayed and frazzled when you use them too much or if they are just getting old.  Technology has even allowed for credit cards to be made out of other substances like biodegradable plastic and even graphite, so there’s no telling what credit cards will be made of next!

The History of American Express

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When you think of the more exciting things in life, researching the history of a prolific credit card company like American Express probably doesn’t come to mind.  However, it turned out to not only be quite interesting but entertaining as well.  To some people, history of anything is pretty dull but the one thing you can always count on when studying it is a surprise and learning something new. I found both while researching this multibillion-dollar company.

In 1850, the American Express Company was founded by Henry Wells, William Fargo and John Butterfield in New York.  The company was devised as an answer to the delivery problems facing the westward expansion of the US.  The US postal service was excruciatingly slow and only delivered letters so there was no parcel delivery or safe way to send money. Thus American Express was born. The company flourished especially with commercial customers including banks. Out of this, the company realized a need for a better processing or money delivery service and in 1891 American Express began selling money orders and within just a few short years, the company was selling almost $6 million in money orders per year.

Through the turn of the 20th century and two World Wars, American Express continued to expand its money order business as well as offering travel assistance. It is during this time that the company becomes an International business by opening travel department branches in several European countries. In fact, American Express became a refuge or haven for stranded Americans in both World War I and II, by offering check cashing and destination passages when other business entities would not.

It was also during the 1930’s that the company survived a take-over attempt by Chase National Bank. The 1933 Glass-Steagall Act which prohibited banks from owning financial institutions. As a side note, this Act was repealed in 1999 by the Graham-Steadman Act which allowed for Banks to diversify into financial investment houses. The Great Depression of the 1930’s was a hard time for many banks let alone the American public. American Express managed to weather the economic hardship because they were not classified as a bank and would stay open when other banks could or would not.

In 1958, after watching Diners Club introduce a convenience “credit” card to its members, American Express jumped in with their own version which today is called “The Green Card”. Although not a true credit card in that it would allow for revolving debt (a thought horrifying for many at the time), it did offer consumers an option to carrying cash or writing a check for purchases. The American Express card had a higher annual fee ($6 vs. $5) than the Diners Club so as to distinguish itself in this new market as being the cream of the crop for credit cards.

American Express introduced the Gold Card in 1966 and the Platinum Card in 1986. These two cards continued the company’s long held mark as being ‘the’ credit card to have in your wallet.  During the mid to late 1980’s the American Express felt the growing pains of a company expanding and diversifying too quickly due to its buying into such expensive acquisitions as repurchasing all outstanding publicly traded shares of Shearson-Lehman in order to infuse cash into the company as well as First Data Corp. and the Trade Development Bank.  Even the launch of the American Express Optima Card, the company’s first true revolving credit card, was not enough to stave off the continued free-fall of the company’s share price. The only thing that saved American Express was its brand and reputation which was growing outside of the United States by leaps and bounds.

Slowly American Express began divesting itself of all the entities it had invested in and once again began growing and strengthening its brand identity and its core markets which are traveling and credit cards. Today, American Express enjoys a strong and broad market share with its core components and continues to evolve into one of the largest International corporations in the world.  With a strong diversity of charge cards and credit cards, American Express looks primed for the future.

Important date in the development of American Express:

1841 – Henry Wells founds Wells & Co.
1850 – Wells, William G. Fargo, and John Butterfield form the American Express Company.
1852 – Wells Fargo & Company is founded.
1868 – American Express Company merges with Merchants Union to form the American Merchants Union Express Co.; Henry Wells retires.
1881 – William Fargo dies.
1891 – The American Express Traveler’s Cheque is introduced.
1910 – Mann-Elkins Act makes express companies subject to the scrutiny of the Interstate Commerce Commission.
1914 – George C. Taylor becomes company president.
1915 – American Express opens its Travel Department.
1919 – The American Express Co. is established to expand the company’s international banking operations.
1958 – The American Express travel-and-entertainment card (the ‘green card’) is introduced.
1981 – American Express acquires Shearson Loeb Rhoades Inc.
1982 – American Express is reorganized under American Express Corp.
1987 – The Optima Card is introduced. The first revolving credit card for American Express.
1993 – Harvey Golub becomes CEO; American Express wins federal government’s travel and transportation system contract.
1999 – American Express launches Blue, the first ‘smart card’ offered in the United States.

Five Common Credit Card Scams

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According to the US Department of Homeland Security, credit card fraud costs Americans over $500 million annually. Despite concerns over terrorism, health care, and the environment, credit and debit card fraud ranks as the number one fear of Americans. Individual consumers, merchants and credit card companies are all at risk.  As technology advances, the public will continue to face mounting challenges to prevent and detect credit card scams.

Below are 5 common credit card scams that you need to look out for to avoid having your identity stolen.  The second you become aware of a credit card being used without your knowledge, you need to call your credit card company and have the card canceled.  

Lost and Stolen Credit Cards

The oldest form of credit card fraud is lost and stolen credit cards. This form of credit card fraud requires no investment in technology. Professional criminals and pickpockets prey upon innocent civilians who have accidentally lost their credit card(s) or taken their attention off their belongings. Unfortunately, there is no real solution to this problem. The only recourse is to stop the credit card through your credit card issuer. If detected early enough, one might be able to stop the damage; however, if left unchecked, the culprit could rack up substantial charges.

Card Not Present Orders

Card Not Present Orders or CNP is a type of credit card scam that occurs when the physical card is not required or visible for the order nor is the consumer’s signature on a sales draft required. CNP scams usually take place via the Internet, over the phone or through the mail. Criminals use stolen cards to place fraudulent orders. Because there are no security guards or cameras present as there would be in a store, criminals are less likely to be caught. Unlike a lost or stolen credit card, which may penalize the consumer who had their card lost or stolen, a CNP scam affects the consumer and the merchant. In all likelihood, once the consumer realizes that they have been scammed, he or she will protest the charge and the merchant will have to process a refund. It is difficult to immediately recognize when such a scam has been carried out, and therefore, takes longer to be reported and is less likely to be investigated.

Application Fraud

Application fraud is another common credit card scam and can be divided into two types: the first and most widely known is “identity theft.” In this case, a criminal assumes someone else’s name and credentials to fill out a credit card application unbeknownst to the victim. Often times, an individual uses a false name with a temporary address or steals supporting documents from the victim to substantiate the application. In recent years, banks have “tightened” the application procedure and require account references, a birth certificate, driver’s license and/or passport. However, if and when an identity thief is approved for a card in the victim’s name, thieves have free reign to inflict monetary and emotional harm including damaging the victim’s credit score and payment history.

The second type of application fraud is financial fraud. This type of fraud entails providing false information when applying for a credit card perhaps to gain more credit than the perpetrator is entitled to. Often times, the fraudster will exaggerate income. Although banks attempt to put up safeguards, fraudsters have successfully gotten around such measures.

Phishing

One of the more modern credit card scams is known as “phishing.” In this scenario, Internet hackers lure their victims to an official looking website claiming to be the victim’s bank, credit card company, or payment processor such as PayPal. The fake website looks as close to being legitimate as possible and includes logos, URLs and slogans. Victims are then asked to provide their bank and credit card information as part of a “routine security check,” yet in reality, the consumer’s information is being stolen. Once the unknowing victim “submits” his/her credit card information, it is immediately transmitted to those running the scam.

Skimming

Today, skimming is becoming the most popular method of credit card fraud and the most difficult to prevent. Most often, skimming is an “inside” job and usually involves a dishonest employee that interferes in legitimate transactions. Employees or cashiers can carry pocket skimming devices (as pictured below), battery-operated electronic magnetic stripe readers, and use this technology to swipe the customer’s card to obtain their credit card details.  During this time, the unknowing customer is waiting for the card terminal to validate their transaction. Once the clerk has the consumer’s credit card information, he/she is free to go on a spending spree. Skimming is not only difficult to detect but hard to prevent, as the last person a defrauded customer suspects is the store clerk. Further, advances in skimming technology have made it easier to copy the data of those cards that claim to be completely secure.

How to Apply Online for a Credit Card

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The Internet has made applying for a credit card quick and easy. Not only has the Internet made online applications a reality, but it also has made finding, reviewing and comparing credit card offers a snap.

While it may at first seem complicated to apply online for a card, it’s really simple. We’ll walk you through the process here, which only takes a couple of minutes. An online credit card application involves just three steps:

1. Compare, review and pick the card you want
2. Visit the card’s secure online application page
3. Fill out the online form to submit your application

Let’s take a look at each of these steps.

Step 1: Compare, review and pick the card you want

The first step is to choose a credit card. We’ve made that task easier by organizing credit card offers by category. In the left sidebar you’ll see five primary categories of credit cards: (1) low interest rate cards, (2) rewards cards, (3) cards by credit history, (4) cards by type, and (5) cards by issuer. These card offers include credit cards from major issuers such as Citi, Discover, Chase, and American Express.

On each page you’ll find the information you need to choose a credit card. This information includes the card’s interest rate, any 0% introductory offers, and details on any rewards offered by the card. Once you’ve chosen a card, it’s time to move to step two.

Step 2: Visit the card’s secure online application page

With each credit card offer you’ll find here at Credit Card Offers IQ, you’ll see a green or orange apply button. Pressing this button will take you to that card’s official online application page. It’s important to note that you’ll never be asked for confidential information here at Credit Card Offers IQ. All of your application information will be provided directly to the credit card company on their secure website.

Step 3: Fill out the online form to submit your application

Once you’ve chosen the card you want and gone to the card’s online application, it’s a snap to apply online for the card. By federal law, credit card companies must collect certain basic, identifying information. This information includes your name, address, date of birth, and social security number. You will also be asked about your occupation and income, and whether you have any bank accounts.

If you are applying for a card with a 0% balance transfer option, you may also be asked about the balances you wish to transfer. And if you want to add other authorized users, you will be asked for their name.

Once you’ve submitted your application, you should receive a confirmation e-mail from the credit card company stating that your application has been received. For some cards, you can actually get the results of your application in about 60 seconds. Instant approval cards, such as those from Discover or American Express, make applying for a new credit card quick and easy.

3 Ways a Credit Card Can Protect Your Next Purchase

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Some benefits of using a credit card are obvious. For example, some use credit cards to take advantage of 0% offers, cash back rewards, or miles. But there are some additional perks to using a credit card that aren’t as well known. One of those perks is purchase protection
Purchase protection offers you additional assurance that the product you are about to buy is protected from certain types of losses. Whiles these protections vary from one credit card to another, purchase protections usually come in three flavors:

  • Protection for purchases
  • Warranty extensions
  • Protection for returned items

Let’s take a look at each of these benefts.

Protection for Purchases

Protection for purchases cover merchandise that has been damaged or found to be defective. In some cases, the protection also covers you if the item you purchased becomes available for less than you paid. These protections usually lasts 90 days from the date of purchase. Depending on the card, there may be a minimum monetary requirement to qualify for a refund.

Examples from several popular credit cards:

American Express

  • Embedded Protection: Use your Card and Purchase Protection protects eligible purchases against accidental damage or theft for up to 90 days from the date of purchase.
  • Worldwide Coverage: Coverage includes eligible purchases made worldwide with the Card, including gifts purchased for others.
  • Shop Worry Free: Purchase Protection repairs, replaces or reimburses you for up to the amount charged to the Card.

Citi Diamond Preferred Card

  • Price Protection: If you buy something with your Citi card and then see it advertised in print for less within 60 days, you will receive a refund for the difference up to $250.
  • Retail Purchase Protection: Most items purchased with your card are eligible for protection against accidental damage or theft for up to 90 days from the date of purchase.

Warranty Extensions

Many credit cards extend the terms of any original manufacturer’s warranty, which is typically an additional year added to the warranty. Some credit card companies, however, will not extend the warranty if you haven’t registered your product.

Examples from several popular credit cards:

MasterCard

  • Extended Warranty: Doubles the original manufacturer’s or store brand warranty for up to one year when you pay with your eligible MasterCard card.
  • Satisfaction Guarantee: If you become dissatisfied with a product you purchase using your eligible MasterCard card within 60 days of purchase, and the store will not accept a return, you may be eligible for a refund for the cost of the product up to $250.

American Express

  • Embedded Protection: Charge your covered purchases that have a valid U.S. manufacturer’s warranty of 5 years or less to the Card.
  • Extend Your Warranty: Charge your covered purchases that have a valid U.S. manufacturer’s warranty of 5 years or less to the Card.

Protection for Returned Items

These features guarantee customer satisfaction on covered items charged to a card. If a card holder tries to return an item and the manufacturer or vendor won’t take it back within the allotted time, the card holder will receive a refund from the credit card issuer.

Examples from several popular credit cards:

American Express:

  • 90 days of Protection: If you try to return an eligible item purchased in the U.S. within 90 days from the date of purchase and the merchant won’t take it back, American Express will refund the purchase price.
  • Up to $300 Coverage: You are covered for up to $300 per item, excluding shipping and handling, up to $1,000 annually per Card account.

MasterCard

  • Satisfaction Guarantee: If you become dissatisfied with a product you purchase using your eligible MasterCard card within 60 days of purchase, and the store will not accept a return, you may be eligible for a refund for the cost of the product up to $250