Gone are the days where you worked a 9-5 job and stayed with a great company for 40 years before you retired. These days, it’s all about creating your own dream career, and building start-ups has been on a rise. Even little Susie from the Verizon commercials has gone from running a little lemonade stand to national distributor of ‘Susie’s Lemonade’.
The common question is, how should we be approaching this? Selecting the right credit card and financial products is just the beginning but will do great favors for the young entrepreneur in the long run. Here are some tips to starting off your business with good credit:
One of the greatest challenges for your entrepreneurs is getting the right investments in order to fund their start-up businesses. As a young entrepreneur, you are not only worried about if you can attain this funding but also where you can get yourself a relatively rewarding credit card deal and how your credit scores will reflect upon your future borrowing power to further invest in your company. As with all things, making your credit card’s minimum payments consistently may not be demonstrating a sufficient enough of income to supplement the amount you are looking to spend on credit.
Another challenge is the fact that young people tend to have little to no creditability when it comes to obtaining loans. Whether you’re just looking to apply for a personal credit card or looking to use it for business purposes, you’ll likely have to deal with the fact that your credit card will have a much lower limit than you had hoped. A lot of the time you’ll hear people suggest that you should actually lower your credit limit to prevent overspending. While this may be true, as a young entrepreneur it does you no favors to have limited credit when you potentially need more financial support.
Build Credit to Gain Credit
Building credit is essentially one of the first things young entrepreneurs should have at the back of their minds. If you’re even remotely interested in pursuing this field in the future, highly consider the steps you can take to improve your credit score. Some simple actions to be taken are starting off with a low credit card limit as a student and making the appropriate payments every month. Having a credit card is one of the most efficient ways you can start building credit right away—even your crippling student loans aren’t as efficient.
As soon as you’ve built an appropriate credit limit for yourself, make sure to keep below that boundary and continue to make your payments on time. The worst thing you can do to hurt yourself is probably build all this great credit and then burn everything you’ve ever worked for by not making payments on time. The information held by financial institutions about your credit history never truly goes away. In some sense, this makes your credit history somewhat like all the embarrassing photos you posted on Facebook the other night.
How do you know you’ve made it?
You may recall the snail mail your parents found incredibly annoying that congratulated them on their credit history and suggested them to add to their credit card limits. As a young entrepreneur you should take those as good indicators of your credit building success. Financial institutions will only invite those they believe can pay off their loans consistently to increase their limit, and as a young business owner that’s precisely what you need to reach the appropriate levels of funding.
One more important thing to be aware of when it comes to having a business credit card is the idea of not having any personal liability for the debt that you incur for your business. This major myth has people wishing they never overspent left, right, and center. There is no such thing as running away from debt unless you decide to go bankrupt—in which case there isn’t much of a chance you’ll build good credit history ever again. So before you dive into anything for your business, know that while some risks are important to take, you’re going to be held liable for them all.
A cautionary note: Unless you can obtain loans for little to no interest, it probably isn’t worth your while to use such measures to increase your credit score. Consistent building of credit score by paying your bills on time will better serve your cash flow and have a greater impact over time. Don’t forget you can also window shop for the loans with the best terms! Bottom line is, even if you’re in a hurry to build credit, avoid incurring the unnecessary costs of a loan.