If you use credit cards to pay your business expenses, being shut down by an issuer, even temporarily, can be catastrophic.
As a small-business owner for over two decades, I’ve been in various situations where a credit card issuer temporarily shut down an account. I’ve also heard my fair share of horror stories from other business owners.
Here are some scenarios to avoid so you don’t see your credit card shut down at the worst time.
Paying off your balance multiple times in one statement cycle
Also referred to as “credit cycling,” this is when you make payments over the course of a month that allow you to charge more than your total available credit.
For example, let’s say you have a $10,000 limit on a credit card. In the first week of the month, you charge $9,000 on the card and then quickly send in a payment for $9,000. Once that payment clears, you spend another $9,000 during the second week of the month.
Issuers view this practice as higher risk. Even though it might seem reasonable to you to pay off your balance and use the credit line again, this is a red flag for card issuers.
It doesn’t necessarily mean your card will get shut down, and if you have a longtime relationship with your issuer, it may be perfectly fine with this. But you may be better off asking for a credit limit increase or asking if you can make a prepayment ahead of activity that would put you over your credit limit.
My business uses a number of cards that we pay off multiple times each cycle. As a general rule, we won’t do this with a brand-new card, and we try to make sure our spending increases happen gradually over a period of a few months.
Ramping up spending quickly on a new card
I’ve had new business cards get temporarily shut down twice, that I can recall. Both were with Chase. In one case, I had a sizable transaction that needed to be made shortly after I received my brand-new card. The charge was approved, but the remainder of my available credit was made unavailable for the remainder of the billing cycle.
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In another instance, I ignored my own advice above and paid off my balance multiple times during one of the first few months I had the card. No charges were declined initially. However, after paying down the balance midmonth, my online statement continued to show no available credit until the statement closing date. In both cases, multiple calls to customer service yielded no relief. But thankfully, the problem resolved itself within a couple of weeks.
International transactions
International transactions can mean a couple of different things. The most obvious is physically using your credit card while traveling abroad. In this instance, I always try to call my card issuer and tell it when and where I’ll be traveling. Many issuers say this isn’t necessary, but some are notorious for freezing cards after they’ve been used overseas.
Some also view “card not present” transactions with overseas merchants as risky. That could be as innocuous as simply buying something online or over the phone from an overseas merchant.
Issuers consider a number of factors when assessing risk on a credit card transaction. They may score a single international transaction at a low enough risk level to approve it. However, a pattern of overseas transactions may be seen as riskier and lead to a temporary suspension of your charging privileges.
Thankfully, my personal experience here is that calling your credit card issuer to verify transactions is usually enough to release a temporary hold on your account.
Authorized user (mis)behavior
It’s fairly common for small-business owners to issue authorized cards for key employees. This allows them some of the same protections that business spending programs such as Ramp and Rippling provide, by authorizing only a portion of the credit line for an authorized user.
Several years ago, I had a hold placed on one of my accounts. I didn’t immediately discover the suspension of charging privileges, as the issuer didn’t contact me. After a transaction failed when I tried to use my card, I called the issuer and learned one of my employees had attempted to get a cash advance with their card.
Making your payment from a new bank account
The worst shutdown I’ve ever dealt with was my most recent. And, I’ll be honest, I never saw this one coming.
I’ve held a version of the Capital One Venture X Rewards Credit Card for almost five years. When the business version launched a couple of years ago, I applied and was approved. I shifted much of my spending from the personal card to the business card and continued using it regularly.
Recently, as my business has been shifting its banking to a different institution, an employee paid the Capital One Venture X Business card’s balance using an account from the new bank we had just transitioned to.
Capital One immediately shut down all of my credit cards. After several phone calls, it asked me to start a three-way call with the bank to verify that I controlled the account the payment came from.
Our new bank refused to speak with Capital One, even with me on the line. We even tried getting our business banker involved, but the bank wouldn’t show flexibility on this policy.
Meanwhile, Capital One kept the accounts closed and requested a statement showing the payment that had been made, which meant waiting until the statement period ended. We sent it and waited days with no response.
Over the next several weeks, Capital One repeatedly asked for additional business documents and made additional requests to speak with my bank. Each time, I explained we’d already tried. Eventually, after roughly two months, Capital One relented and restored access to our accounts.
My take
In light of these pain points, it’s worth pointing out that over the course of more than two decades as a small-business owner, there’s one credit card issuer that has never crippled my business with a temporary shutdown. The same issuer also managed to get new authorized user cards for my employees in less than 24 hours when we had our most recent issues.
Which issuer? American Express. In my experience, it has been a great partner in these respects, especially when other issuers have let us down.
Bottom line
If you’re not careful, an issuer can shut your credit card down at the worst possible time.
The more your business depends on credit cards, the more important it is to exercise caution. A temporary shutdown can be incredibly disruptive, especially when employees rely on those cards for daily tasks like travel. (It can also create distrust among staff members, who rarely know the full story.)
For that reason, I recommend small-business owners hold credit cards from multiple issuers.
