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Prepare to manage your cash flow and credit

As you think about the features you’re looking for in a credit card, bear in mind what it takes to handle that card responsibly. Being educated will help your freelance business stay around for the long haul!

Here are some important things to consider as you manage your card:

  • Utilization ratio: This is the total of your balance spent divided by the total of your spending limit. For example, if you hold a balance of $1,000 on a credit card with a $4,000 limit, your utilization ratio is 25%. According to experts like personal and business credit bureau Experian, it’s best to keep your credit utilization ratio at 30% or less. Anything higher may negatively impact your credit score.

  • Debt-to-income ratio (DTI): Your DTI looks at your overall liabilities owed each month vs. your monthly earnings. This includes credit card debt and other liabilities. While this doesn’t directly impact your credit score, a high DTI (more debt, less cash) can make it harder for you to secure financing in the future. Generally, a high DTI is 50% or more.

  • Hard inquiries from credit card applications: When you apply for your first business credit card as a freelancer, you’ll get a hard credit inquiry on your personal credit score, which can dip your score by up to ten points. Hard inquiries typically impact your score for one year.

  • Credit card interest rates: Business credit card annual percentage rates (APRs) averaged 19.82% in late 2022, according to data from The Balance. This is lower than all other types of credit cards, but still very high. Be wary of carrying a balance and feeling the heat of compounding interest rates.

  • Personal vs. business credit: Credit card companies will check your personal credit score as you build up your business credit. This means you may get inquiries on your personal credit report as well. As you create a registered entity and build your business in other ways, companies can rely more on your business credit. 

FYI: Personal credit scores range from 300–850 and are managed by Experian, Equifax, and TransUnion. Business credit scores range from 0–100 and are managed by Experian, Equifax, and Dun & Bradstreet.

Managing cash flow and credit as a responsible freelancing business owner

Yasmin is a freelance graphic designer. She’s preparing for a business credit card and wants to get used to managing her spending. To do this, she wants to do some calculations to make sure she can keep a low utilization ratio and pay her card balance in full and on time each month.

Yasmin estimates she’ll get a starting credit card spending limit of $2,000. To keep an ideal utilization ratio of 30%, she’ll want to spend no more than $600 each month, give or take.

She lists some business expenses she can regularly pay for on her credit card:

  • Invoicing software: $20/month

  • Education (books, courses): $50/month

  • Adobe InDesign: $21/month

  • Project management software: $12/month

  • Website hosting and a domain: $30/month

  • Virtual assistant: $100/month

With these regular expenses in mind, Yasmin will spend at least $233 per month on her business credit card. That leaves plenty of wiggle room for additional expenses, such as travel to meet with clients, visits to a co-working space, and more.

Practice balancing your credit card usage

You don’t want to go into debt on any credit card, especially if it’s for your business. That’s why we’re going to take you through an exercise, so you can practice managing your expenses—paying for some on credit and others in cash. 

In the workbook, you’ll practice spending on your credit card without going over your ideal utilization ratio (30%), while still being able to afford to pay your bill in full and on time each month.

Pretend your spending limit is $2,000. Look at your previous spending categories in Step 1 and list what regular monthly expenses you can afford to put on credit without exceeding $400 (that’s a utilization ratio of 20%, which leaves some wiggle room for unexpected expenses that come with being a freelancer, such as a new computer or tax penalties).

Sure, this may sound strict, but it’s better to practice ahead of time so you’re not reigning yourself in to get out of debt. You may have to go through the list a few times until you can naturally balance your spending.

Did you know? You can securely pay taxes and tax penalties to the Internal Revenue Service (IRS) using a credit card. However, this typically costs a fee, with the precise fee varying by the payment processor. If you have a bank account, consider getting checks that you can mail in for this purpose.

After this exercise, you should have a better understanding of what it takes to manage your spending on a business credit card and avoid going into credit card debt.


  • Managing a credit card takes practice, and you dove into the details of what really goes into it—from managing your utilization ratio to avoiding super-high interest rates.

  • Overspending on credit is easy, but you took a look at your own forecasted expenses to get comfortable with keeping your credit usage in line.

  • Considered expenses you may not have initially thought of, like excess tax liabilities or unexpected computer costs, factoring them into your spending mindset.

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