You know that establishing and maintaining a solid credit rating is a great way to make sure that you can power through the ups and downs of market fluctuations. The thing about Business credit, though, is that it often seems impossible to get Business credit unless you’ve already established good personal credit.
For young people who want to start on the right foot, beginning from scratch with no credit history can seem like an impossible task. But with the right strategies and responsible use of the tools available to you, you can establish solid personal & business credit in the early years of your adult life.
Use these strategies to get yourself off on the right foot and establish a solid credit rating, right off the bat:
1. Check your credit report. In order to know where you’re going, it’s important to first assess where you are. When you’re first starting out, your credit file is probably sparse. However, with identity theft on the rise and other credit dangers lurking, it’s important to check your credit first to make sure you are indeed starting from scratch. It’s always very important to understand how that report actually functions.
· It’s also important to check your credit file as often as possible. Federal law allows you to obtain a free copy of your credit report from each of the three major credit reporting bureaus once per year.
· To continuously monitor your credit throughout the year, stagger your requests for these reports. That way, you’ll quickly be alerted if something improper has been added to your credit file. Instead of requesting all reports at once, request one from a different bureau every four months.
· If you’re not starting out and you have an idea what’s on your personal credit report then it becomes a matter of strategy. This is the point where your understanding of what a credit report actually is. When you approach this strategically it is important that you first understand that the credit report is a report that you did not ask for and may be incorrect & yet it’s used to make life-changing decisions. Your report isn’t your debt, it’s a third party representation of your debt & the amount of trust others have placed in you.
· You may have heard of Experian, Transunion, & Equifax. However, if you’re taking on your personal credit strategically these three matter much less than the big five you probably haven’t heard of Lexis Nexus, Sage Stream, CoreLogic, ARS, & Innovis. These companies and their relationship to your report is the cornerstone of strategic credit management. While the full scope of their utilization is well outside the scope of this blog, it’s important to understand that by understanding how this works you can legally make yourself very difficult if not impossible to negatively report on & gain much greater control of your report.
2. Pay your bills on time every month? One of the most important factors that influence your personal credit score is your history of paying your bills on time. When you pay your bills by the due date every month, in the eyes of creditors, you’re living within your means. HOWEVER, there is a difference between your due date & your statement date. If you pay a credit line by the due date but then use it again before the statement date your total utilization when reported will include your utilization before your due date + any utilization up to your statement date. Which will artificially make you appear to have a higher utilization at best & be over limit at worst. Business Credit is Different here the main difference here is that the only way to get a perfect Business Credit score is to pay back debt better than agreed which is not a personal credit requirement.
3. Get a recurring bill in your name. Often, students will have regular monthly bills listed in a parent’s name. However, if you get a cell phone bill or another monthly recurring bill in your name and pay it in full every month, you’ll establish yourself as a person who’s responsible for handling financial matters. Once you’re done with college income works better than the recurring bill and this becomes a moot point. As for Business Credit, this isn’t necessary at all. With our clients, we set up independent Business Credit immediately which IS NOT secured by personal credit or a social security number.
4. Have someone you Strategically give you a credit boost. You can actually use someone else’s good credit to establish your own solid reputation. You can do this by having that person cosign a loan for you or by becoming an authorized user on that person’s credit cards. If you’re going to use a Strategic approach then you’d create a strategic plan that would go something like this.
1st get a $5,000 cosigned loan (NOT A SECURED CREDIT CARD).
2nd take $1,000 to a small bank or credit union and request a $1,000-$1,500 secured loan using $1,000 as collateral paying no more than 1.5% interest. You now have $5,000 – $5,500 left.
3rd A month later go to another small bank or credit union and request a Small business loan on your EIN only secured by $1,000 same terms as above (Note the $1,000 may need to be in the form of a CD) You now have $5,000 -$6,000 left.
4th A month later you make a $3,000 payment on the cosigned loan. You now have $2,000-$3,000 left. You then make a $500 payment on the other two loans. You now have $1,000 -$2,000 left.
At this point pay the minimum payment on all loans until they’re paid off & your results will be that you can get both personal & business credit on your own & start new strategies that will get you up over seven figures in credit lines.
5. Get a student/business credit card only if you have a plan for it. Often, college students can get credit cards more easily than others can. In fact, on many college campuses, you can find booths at student events that promote credit card sign-ups with cash prizes or other incentives. Business Cards are similar however these cards have low limits and higher interest & they take up space on your utilization.
6. Use these cards sparingly but regularly. If you’re obtaining credit cards mainly to increase your credit rating, you need to use the cards to experience the boost in your score. Make small monthly purchases with the cards and pay 90% of the full balance each month. Remember not to use the card again until after the statement date.
· Remember, though, that a credit card is not cash. Borrowing from a credit card means agreeing to pay much more than the purchase price if you don’t pay it back on time. Avoid credit bondage. Be smart and make only small purchases that you can cover in full when the bill comes due each month but carry a small balance to show the creditor that they can actually make some money off of you. Remember these are products not just free money. Paying your card in full monthly doesn’t excite the banks as much as paying your balances on time & accruing interest.
7. Set up a monthly budget. One of the most important factors in maintaining a solid credit rating for life is a lifestyle of wise financial decisions. When you list all of your income and expenses, you know the financial resources you have available to you. When you do, you’re less likely to get yourself into a credit bind.
Setting yourself up on solid financial footing early on in life sets the stage for a lifetime of fulfillment. Misuse of credit, however, can set the stage for a lifetime of bondage. Choose fulfillment by applying these strategies to establish a solid credit rating right off the bat.
If you need to work with a Strategic Mentor to plan a specific plan to establish business credit &/or improve your personal credit you can get in touch with Diaspora Freedom Initiative at [email protected] or @DiasporaFreedom on FB, IG, & Twitter