You may have heard about these plastic rectangles called credit cards, commonly used for making online purchases to make your dropshipping business easier. Yes, those.
Did you know they also protect against fraud and are a fast way to build credit to have other businesses trust you? (Like Paypal and Facebook)
While credit cards make purchases, a breeze should also handle them carefully, so you don’t get yourself accidentally into financial debt!
To start, let’s look at what exactly a credit card is.
What are credit cards?
A credit card is a metal or plastic card that allows you to get into a credit line given by a bank-issued to the card.
Each time you pay for something with a credit card, you borrow money from the card’s bank to cover the purchase. Very important to note: you then need to pay the money back either in full towards the end of the month or over time.
Yep, there is no free money from credit cards, and you’ll eventually have to pay back what you borrowed.
What are the benefits of using a credit card for dropshipping?
Let’s take a look at Steve, who needs to purchase a high-ticket product from a dropshipping supplier, but he doesn’t have the amount to buy it from his account.
Steve can use a credit card instead of waiting days or even weeks for his website’s payment process to send the customer’s funds to him!
Steve’s credit limit will cover the cost so the customer can get the product sooner and Steve can get the profit faster. It’s a win/win for everyone.
Using credit cards for dropshipping: The pros & cons
A few things are clear whenever you tally up the cons and pros of credit cards. There are various reasons for using a credit card, from the convenience and charge construction to 0% financing and benefits.
But considering how easy it is to overspend with a credit card, how pricey getting into debt is, and how missed payments can hurt your credit rating, there is the reason to be careful!
We rack up billions of dollars in credit card debt every year. Anytime you are 30+ days late on a payment, it mentions your credit report for seven years!
However, the benefits of credit cards significantly outweigh the disadvantages for many people. You do not even need to make purchases with a credit card to benefit. Just educate yourself on what to do and what not to do, and you will be alright.
The pros of using a credit card
Let’s start by taking a look at what the pros are of using a credit card:
- Credit building
The power of credit cards comes from your credit score. The higher the score, the more the bank will allow you to borrow money, afford a business order, or set up services.
The more you spend and pay off the debt on time, the higher your score from credit building – like a video game.
The best part of building credit is that you have proof that you’re financially trustworthy and make people feel at ease when working with you!
You don’t typically see people carrying large briefcases of money. That’s why the convenience of having a card hold all your money is so convenient.
Not only is a credit card easier to carry, but it is also a whole lot simpler to protect a card than a large sum of cash you have with you.
Knock on wood – if your credit card is stolen or lost, you are not in trouble for any charges you didn’t make. You cannot say the same for dollar bills.
- Grace Period
A grace period is when you have at least 21 days from when you get your credit card bill every month to pay it.
That means that if you pay the bill in full each month, you have up to 51 days before you need to pay your bank back for the borrowed money! Take advantage of this.
Who doesn’t like rewards? Credit card banks know this, and that’s why they offer them.
Many credit cards provide rewards, whether they are cash back, airline miles, hotel points, or gasoline rebates. Not only does it help lower the cost of purchases, but it also gives you reasons to keep using their card.
You join a membership with unique perks by getting a rewards credit card, unlike other cards.
Did you know some cards provide discount rates and exclusive access to shows, ball games, and concerts? They can even pay for VIP treatment in airports and resorts, concierge services, and unique presents just for using their card!
Rewards credit cards give you something back for each sale you make. In general, these cards need good credit.
The cons of using a credit card
Yep, some pitfalls can and probably will happen because credit cards aren’t perfect. Since you have now seen the pros of using a credit card, let’s move on to the cons:
- Overspending and lending
When we’re spending our hard-earned money, it’s easy to see just how much we have. With just a physical card, that feeling of how much money we have can go away.
It’s kind of like how casinos use chips instead of dollar bills and coins. It helps you not feel as connected to your money when you spend it.
Overspending can happen because you’re spending your own money without associating it, so it’s easy to get caught up in the convenience of being rewarded now and then have to pay later.
Overspending on your credit line can lead to overdraft fees. These are the fees from when you spent more than what you’re allowed. That said, remember what your limit is and never pay more than that in 1 month.
The average credit card charges a yearly fee of about $16, which isn’t terrible. It may also be worth paying an annual fee to get better rewards!
But other fees can add up, and why pay when can avoid them first? This includes cash advance charges, account overdraft charges, and foreign transaction fees.
- Fine print
Credit card applications are hard to read. That’s because they’re trying to protect themselves legally, so the choice of words and grammar will be different because of that.
As long as you understand the keywords such as ‘increased rates of interest’ or ‘unexpected fees’, you should be able to avoid anything that can prevent you from your financial goals.
- Vague approval requirements
The credit card banks will tell you the approval based on your credit history, income, and debt. It can often feel random on their choice, so you’re at the mercy of their decision.
A few banks allow you to look for pre-approval before you apply. But other than that, you are pretty much flying blind without much in the way of changing it.
The most significant scary worst-case scenario is someone having access to your credit card without your consent. Because they don’t have to pay it back, the thief can buy whatever they want.
This means your credit score and your financial planning will get destroyed! Although there are ways to reverse some damages, it’s still quite the hassle and headache to go through that.
That said, it’s important to guard your info and your credit card(s) for errors every month. If you lose it, it’s best to contact your bank immediately to deactivate it, so they cannot use it if someone has it.
Bonus: Cards for average or bad credit
So, you may have missed a couple of payments or mistook how much money was on your account, and now your credit score has been lowered. It happens, and it’s not the end of the world.
The good news is there are credit cards for all credit scores. It is important to note that it is possible to have too low of a score that you will not give a credit card.
Those with less-than-good credit are more limited than what good credit scores can bring. Rewards are rarer, and rates of interest are more excellent. Use these cards to improve your credit so that you can qualify for much better offers later down the road.
And there you have it; everything you need to know about using a credit card for your dropshipping store!
As you can see, using a credit card responsibly is an easy and effective means to build up strong credit. You’ll be thankful that you did for whenever you’re in a position to borrow in the future.
With the use of a credit card, you can now make big expenses without holding up your customer’s order or worthy investments that can pay themselves in the future.
The greatest strength in ecommerce is understanding your finances to keep your store growing and profitable.