Credit Card to Build Credit History? And does credit even matter

[DeletedUser394]

Howdy all,

This is a two-fold question. I have a job. I use debit and cash as my forms of payment... would it be beneficial for me to acquire and pay by credit card? I'd never use it beyond what I could afford to pay, so I'd essentially be treating it as a debit card.

The second part of the question is this: Seeing as my LLC will be purchasing all of my assets, and any future assets. (Even car, personal home, etc..in addition to my actual business and RE/paper asset invesments) does my personal credit rating even matter?

I have no need to finance massive HDTVs or any other useless junk, the purpose of building credit history would be to rent an apartment.

Thanks!

Ryan

 

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[andviv]

Short answer: YES.

At the beginning you will probably find that banks will give your business credit IF you are personally responsible for the debt and then later, after a year or so, they will turn to give lines of credit, credit cards and loans under the business alone.

It would be great hearing from others who may have got a loan or line of credit under the business name, with no-recourse or any type of personal guarantee, for a new business.

 

[Ska2free]

My experience has been that, especially in an LLC structure, and especially in the early stages, and especially in the current lending climate...yes. Your personal credit matters...a lot. Definitely start actively building your credit, as soon as you can do so responsibly.

One of my companies is 8 years old, and there's probably still a good chance a bank would ask for a personal guarantee on a big loan. (I'll let you know in a few months...had to give it last time we borrowed in 2006, but think we can avoid it now.)

 

[danoodle]

Yes, yes, and yes! Despite what some financial "gurus" may say, credit cards are not the devil! Responsible use of them will most definitely increase your credit score, which will inevitably help you to get personal or business loans or benefits. Always pay down the balance in full so you don't pay the exorbitant interest rates. I finally got my DW to get a discover card and have convinced her to use it for all her normal expenditures such as gas, groceries, even bills. Might as well get cash back as well as improve your credit score at the same time.

I will reiterate, though, that you must use the cards responsibly. Many times people say they will, but end up not. Only you will know whether or not you can handle an open line of credit like that. I'd start with using it just for your normal, everyday purchases.

Even for business, I know a guy that spent all his savings, maxed out all his cards and beg, borrowed, and stole to raise enough money to start a bar. Ended up working out for him as he has expanded his operations and now owns 3 bars on the same block! It's a college town so I'm sure the demand is there. While that was a very risky endeavor, if you are confident enough in your business sense, that could work out for you! Although a conventional loan or even angel investors would most likely give you a better rate than any credit card would.

Your personal credit score could be the tipping point if a bank or other entity is on the fence about loaning you money or what have you. Go for it!

 

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[Ska2free]

Also, it's worth reading a few articles about what goes into your credit score...it's mostly black magic, but some aspects you can control. For example, length of credit and variety of credit both matter. So pick your first general credit card with care, because it will be to your benefit to keep that account open and active for a long long time. My first credit card, in college, was with a bank I like (quite the rarity, I know, but USAA is fantastic IMO) and I've kept that account for over 15 years.

The other thing is having a mix of credit types...but to reiterate what danoodle said, ONLY do this if you can do so responsibly. Credit bureaus view credit cards different than revolving accounts (gas credit cards, store credit cards), different than installment accounts (car loan, student loans I think), different than mortgage/HELOC accounts. Highest scores go to folks who can responsibly manage a variety of credit accounts simultaneously over a long time...basically rewarding successful sidewalkers who borrow money to finance a lifestyle above their means, but that's a whole other can of worms!

 

[DeletedUser394]

I am very interested to answer your second question. you make a statment that your asset is a house, car, etc..
some people still do not understand the difference an asset and a liability. some people consider that the assets that they maintain is actually a liability. I've learned about money and how money works in the online school Taftbook Entrepreneur School. everything you say an asset (house and car) is actually a real liability to you.

It's a simple use of terminology. I understand the difference, it isn't rocket science.

A) My car/house would be rental property (my LLC owning it), me renting it. B) Investment property, factory, etc are all defined as assets on a balance sheet, with the remainder of the mortgage, loan, wtv being placed under a combination of current/long term liabilities.

 

[Atown512]

I use credit cards exclusively. For one, they offer much better protection than a debit card. I was billed for all kinds of frivolous charges on the last cruise vacation I went on. Because I used my credit card instead of my debit card, it was very easy to dispute the charges. It took me 5-10 minutes to get over $250 worth of charges removed. (don't ever go on a Princess cruise BTW...terrible experience)

IMO, the absolute best advantage of using a credit card for EVERYTHING is the rewards/cash back. After 2 years, I have almost $1000 in rewards points that I can use for whatever I want. If you have trouble remembering to pay off your bill every month, make sure you enroll in the automatic bill pay option. My Amazon card also sends me an email and a text message 10 days before I need to make a payment.

I did a lot of research on credit cards, and the best one I found so far is the Amazon card through Chase bank. It has no fees and the rewards are among the best (1-2% back on most things). Amazon's website also offers the option to check out using the points you have accrued.

If you spend just $1000/month and it only takes 5 mins to pay your bill...getting just 1% back each month is a free $120 per hour!!

 

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[AJGlobal]

Howdy all,

This is a two-fold question. I have a job. I use debit and cash as my forms of payment... would it be beneficial for me to acquire and pay by credit card? I'd never use it beyond what I could afford to pay, so I'd essentially be treating it as a debit card.

The second part of the question is this: Seeing as my LLC will be purchasing all of my assets, and any future assets. (Even car, personal home, etc..in addition to my actual business and RE/paper asset invesments) does my personal credit rating even matter?

I have no need to finance massive HDTVs or any other useless junk, the purpose of building credit history would be to rent an apartment.

Thanks!

Ryan

#1 I NEVER use a debit card unless its an emergency. Big no no, in my book. I could go into many nightmare stories about friends who have used debit cards only to have their accounts wiped out and then you need to deal with the bank to your money back. In the mean time checks are bouncing and your screwed.

#2 You don't need a business CC to pay for your business items. I found that the business cards have lower rewards and to achieve points the amounts are higher vs a personal card. I just itemize my statement every month.

#3 Yes your personal credit rating will matter unless you have an established company with solid financial for at least 3 years. It may be longer now. I was able to do an SBA loan on my office I own now through my company without having to personally guarantee it but that was in 2004/05.

#4 This is a big to improving your credit scores when it comes to CC's. Never spend more than 50% of your total available credit across your card(s). I have 3. Amex, Mastercard and Visa. I use the amex for everything for the biz and personal. The MasterCard gets used when Amex is not accepted. The visa in always at a zero balance but I use it once a month just to keep it active. I pay off my cards every month either way but I never use more than 50% of the total credit lines available across all 3 cards and I would never cancel it just because I don't use it. Reporting agency's like to see that you have all that credit available but that your oly using no more than 50% of the credit you can use. The Amex starwoods resort card is the best IMO. Its $45 a year and for every 20k points that you transfer to Us airways, delta etc etc gives you an extra 5,000 points up to a maximum per transfer. So when I transfer 60,000 points, my airline account get 75,000.

I have friends that have Black amex and they still use the starwoods card. The only time they use the black card is when they need to for large purchases or if booking a plane ticket you will automatically get put into first class. Its $5k a year so unless you travel alot its not worth the $5k unless you just baller status.

Also starwoods resorts are very nice. They own the Phoenician here in scottsdale, Sheraton hotels, St regis hotels, (this was where they filmed couples retreat in bora bora) and my favorite the W hotels. There are a couple more like the westin and meridian and a bunch more that an not chain hotels. The SLS in beverly hills is one too. Stayed there last year. Very nice.