Climbing the Ladder of Credit: Personal and Business

Credit— It affects a great deal of how we operate on a daily basis. For some, the idea of navigating credit comes easy. For others, it can be a mythical creature that always seems out of reach. Credit doesn’t have to be hard to navigate, but it will take diligence on your part.

Let’s break down the two larger areas of credit and make them less daunting to the average person or business.

All About Business

Many businesses take advantage of using credit to help build and establish their brand in today’s economy. But where and how do you start? Will it affect your personal finances? Let’s take a look.

Businesses use credit to run the day to day operations. Keeping these accounts and credit profiles separate from personal assets is key. Your business runs as its own entity, not an offshoot of your personal life. Showing separate ownership not only helps with establishing credit, but also with taxes.

Establishing Business Credit

There are a few steps that need to be followed in establishing credit for your business. The order is important since some things you can’t do before you finish the step before.

• You will need to incorporate your business in order to show it as a separate entity. If you are a sole proprietor, this will not apply to you, but some of the credit building tools may not work for your business in the same way.

• Obtain an EIN number. This works like a social security number for your business, and shows that you are a legitimate company.

• Open bank accounts and phone numbers specifically for your business. This helps with professionalism and helps to keep assets separate from personal accounts.

• Make sure your business is registered with all three credit bureaus.

• Utilize business credit cards or LOC’s (lines of credit). If you are just building your business credit, you may need to apply for secured loans, which require some collateral to be opened.

• Apply for LOC’s with your suppliers and vendors. This establishes your history with them, and makes purchasing needed material much easier.

Benefits

Using these tips will allow you to have better pay terms when you use new vendors. There will be less upfront or prepay terms with those vendors as well. Lastly, it will allow you to have lower interest rates and terms on credit cards from banks and lending agencies. Be aware about keeping your payments on time. This is crucial to growing that mythical number.

Building Personal Credit

Now let’s venture over to the personal side of credit. Many times, if you are establishing new credit or rebuilding existing credit, you will need to start with either a secured credit card or loan, have a cosigner or co-borrower, or be an authorized signer on someone else’s credit card or loan. There are credit builder loans available.

You may see the interest rate at a much higher level than conventional loans and cards, but this is because you need to establish a history of trust with these companies. Remember, these are not meant to be kept for long periods of time. Once you’ve made on time payments for a good amount of time (12 consecutive months works well for banks), you are able to apply for traditional products that may have better terms. Keep these pointers in mind;

• Establish good payment habits so that you build a good payment history. This is just as important as your credit score number.

• Keep utilization at 30% if you are using credit cards. This means don’t max out your cards. This will negatively affect your credit score. It will also keep you from overspending.

• Don’t apply for multiple credit accounts in close range. This can lower your score with too many hard hits in succession.

• Keep credit cards open to keep the account age growing. Close accounts only if needed. Having a zero balance is better than having a closed card.

• Lastly, monitor your credit report often. Doing so will allow you to correct any errors that may show. It also can show you where you need improvement.

Sticking close to these simple steps can allow your score to grow faster than you think. Remember, it’s about time and work. You will need both to achieve the credit you desire for your personal life and for your business.