Should I Build My Credit?

[Lathan]

I am 21 and have no credit. After reading many books/articles about money etc. it has been laser printed in my brain to stay away from plastic. I am debt free now and plan to stay that way and if I did use a credit card, I would make sure I had the money already to pay it off each month.

So, is it necessary (building credit)? This just came to mind because I noticed a few of the regular guys I see on here mentioning things about using credit cards kind of nonchalantly so I was wondering what a fastlaners perspective is when it comes to this?

1.) Should I build up my credit and why?

2.) What is the best way to go about doing this? (Yes, I have googled it multiple times in the past and have an idea but just wondering what YOUR take on it is)

Thanks!

 

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[Daniel A]

I'm 20 y/o and I have no credit (that I know of) either. I know I need to build my credit though. I'm glad you brought this up! I was going to ask about it but it seemed more like personal finance rather than entrepreneurship.

I want an Amazon Rewards card (I make a lot of purchases there..could've been building credit!) and whatever the best card (for me) with JP Morgan CHASE is (my bank).

I think we NEED to build our credit. The last time I was sitting with someone from my local bank branch he told me to get a credit card...but I declined. I should have! I think a student card might be good...I have a student account right now. I have bills that I pay monthly too so I can build it positively. Why? Because once we start our own business ventures (unless you have on already) and we need some more capital fast...there we have it, so long as we have good credit and a high enough limit. Just need to pay it back in time though.

I found these articles with a quick search...not much help with the first except in the comment section. My parents have bad credit so I don't think it'd be good for me to co-sign with them.

http://20somethingfinance.com/reade...oved-for-a-credit-card-how-do-i-build-credit/

http://lifehacker.com/5880453/how-do-i-build-credit-without-a-credit-card

http://credit.about.com/od/creditcardbasics/qt/How-To-Get-A-Credit-Card-With-No-Credit-History.htm

I have a book on credit. I'll read it next and be back here with what I learn man...we need to figure this out. It might take a week though, BRB haha.

 

[MisterBHZ]

Id like to learn more about this as well. Hopefully those that are financially successful can chime in on this.

 

[Kak]

YES YES YES!!! Credit is like an investor. It can help you grow. The debt to stay away from is CONSUMER debt. I have a high 700s credit score and I would not be able to run my business the way I do if I didn't.

I always purchase inventory on credit. This actually allows me to sell my inventory before I even pay for it.

Keep turnover high and you won't even feel credit card interest.

The way I started was a crappy card from capital one. They gave me like a $500 limit. I used it for daily expenses and paid it off multiple times per month. After about a year I applied for a Chase Sapphire card with a $5000 limit. Got it. Dropped the Capital One POS that was only up to $750 at that point. A few months later I got a Amex Green card, I have used this card daily since for personal expenses, you can't carry a balance.

About 6 months after that I got an Amex Simplycash and a United Explorer card.

About 6 months after that I got an Amex Blue Business card, which is a pretty damn hard one to get.

Then came a business LOC from the bank.

-The biggest metric for your credit score is the ratio of your used credit to what you are offered by the creditor. Keep this below 50%.
-Another important metric is length of open accounts. Keep this in mind when signing up for credit cards. No annual fee cards can sit in a sock drawer until they expire and send you a new one and help your credit for free.
-TOO MANY INQUIRIES ARE BAD. Don't keep applying to amex platinum and shit right now, they will decline you and make it harder to get the one you would have been approved for. The green charge, after a year can be upgraded to any of the charge cards except black if the benefits packages are worth it. Ill probably bump up to the preferred rewards gold.

If you have a job, I would not finance anything whatsoever. I know I recommend vehicle leasing and stuff, but that is for people who are self sufficient and do not rely on a job. More debt while you have a job is more entrapment. I think if you added ALL of my consumer debt right now it wouldn't be over about 3k. It will also be paid down to nothing at some point in the next 30 days like I do every month.

Business debt is another story. It is 7k in debt and climbing. But every time I buy inventory my asset value separates itself farther and farther from the debt level, hedging my investments across the board.

If I would change anything from the above, it would be not messing with chase at all. The cards suck compared to amex.

 

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[socaldude]

1.) Should I build up my credit and why?

Hell yes you should because credit if used appropriately can work wonders. Most people use it to buy useless consumer products and carry a balance but if you are a legit Fastlaner you can use it to leverage for reward points, cash flow management, convenience etc. AMEX has one card with a grace period of 60 days no interest. Thats valuable. Not to mention that a good credit score gives you great interest rates on leases, lines of credit and mortgages(Fastlane equipment and Rental properties of course ). See the double edge sword? Again the emphasis here is that you are a legit disciplined fastlaner not some sidewalker.

2.) What is the best way to go about doing this? (Yes, I have googled it multiple times in the past and have an idea but just wondering what YOUR take on it is)

Just like anything in life, baby steps are the key. You will have to start at the bottom. I got my credit started by having a store card with a $500 limit, charged small stuff on it and then paid it in off in full, the interest rate was 27%. Now I have AMEX charge cards and Chase credit cards with $20,000 limits. Scaling a fastlane business requires capital. Buying inventory and paying employees requires capital. Credit can help you if the retained profits of the business are not enough and business if booming. Kind of like a Real Estate investor, access to capital is valuable. Credit cards, charge cards, lines of credit= Valuable fastlane tools. Although cash will always be king, credit can be used to work wonders.

 

[Kak]

I normally throw COGS plus about 30% at the inventory debt every time I receive payment from my various marketplaces. Ill pay myself the rest.

That plum card is working wonders for some people I know, it is perfect for buying traffic. You get your return long before the payment is due as long as you are profitable there is nearly unlimited scalability for someone that has good credit in this instance.

The only reason I don't have one is because my businesses turnover is just a little bit too slow to be paying in full every 60 days and if I went leaner per product my shipping rates would jump.

 

[MisterBHZ]

I've never had the opportunity to get loans or credit cards with very high limits, but I have been blessed with an Amex green card that I've had for years. Using that card is like paying cash except 30-60 days later. Pay it off every month.

Cash & my green card is what I've been using for years to operate my business. I'm glad I did it that way because if I had high loan & CC debt it would be nerve racking.

I'd suggest building up credit to get an Amex card. They are the best.

 

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[socaldude]

@Kak

I'm curious, which bank do you use and why? I use Chase bank because they are my credit card processor and they have great customer service not to mention that they are everywhere. I have found Chase cards to be so and so but AMEX will always my main go to bank. My only fear with AMEX is that they will give me their notorious financial review because I make a lot of out of the ordinary purchases all over the place.

I have the AMEX premier gold and I have found that its great if you spend at least $35k a year otherwise I wouldn't bother.

I heard a statistic somewhere that 80% of small businesses are founded on credit cards.

I cannot imagine trying to run a business on a Debit card alone. I'm not saying it can't be done but the benefits of credit cards are huge. Because if you are a newbie entrepreneur, who the hell are you? The bank doesn't give a shit about your business. No bank will ever want to deal with you unless you have personal credit.

 

[Darius]

Yes.

 

[Kak]

I use a local bank for business and I have Chase for personal banking because of private client. I found business banking at Chase to be a pain in the a$$.

I like simplicity.

"I want an LOC"
Chase would say: call this number and discuss your needs with 74 people and maybe in 6 months youll have a line of credit.

Local bank: well your numbers look good we can authorize 10k and as long as everything continues to look good we can go from there.

Ill probably leave Chase completly.

 

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[Vigilante]

My daughter is dating a guy named Chase. Based on your advice above, I am going to recommend that she leave Chase also.

 

[Lathan]

@Kak & @socaldude thanks a lot for the tips/advice! Really appreciate it.

The biggest metric for your credit score is the ratio of your used credit to what you are offered by the creditor. Keep this below 50%.

So if I got a credit card with a $1,000 credit limit I should spend no more than $500 a month on it? And then just pay that off in full at the end of each month?

I am thinking about switching from my local bank to Wells Fargo(just to be with someone more established) and opening a secured credit card and just buy my groceries, gas, etc on it to start out.

 

[Kak]

You can spend $500 a day on it if you pay it off at the end of each day

Try an unsecured card first.

 

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[Lathan]

Try an unsecured card first.

Will do

 

[DeletedUser2]

credit can be an asset if leveraged correctly.
we have built large businesses on credit.

its worth it to build it, and grow it.

or you will be paying other people of for theirs if need be. (that's ok too)

Z

 

[458]

I started at 18 with a $500 secured card. Now i have maybe 10 credit cards with anywhere from 5-10k limit. I barely use most of them but if I had to, they are there.

 

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[Bowden]

By the time I was your age my credit was already crap. Before my first deployment I thought I set up automatic payments correctly. Turns out I didn't and i came home to a few collections bills. Still trying to repair all the damage.

Credit will come into handy when you get your business up and started. Right now I know I won't be approved for a business loan, though I don't really need one, but I would love to have a line of credit from my bank.

Build your credit because it will get you the absolute lowest interest rates and you will have access to credit you might need. Just be responsible about it and don't use it unless you need it.

 

[AndrewNC]

I took out a $20,000 car loan when I was 19 years old. Big mistake for the next 6 years. I paid every single payment on time and paid that off. Also had credit cards that I paid on time every single month for the last 12 years (wow that makes me sound like i'm getting old). As a result of those payments, I have near perfect credit and have access to pretty much all the money I need when it is time to scale my business.

It all started with a $500 limit card and paying on time every month. Use the card when needed, but don't charge what you don't need. Large debt will entrap you.

 

[Lathan]

I appreciate everyone's input

credit can be an asset if leveraged correctly.

Hey zen*******, thanks for chiming in. Do you mind giving me a real world example of this?

 

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[DeletedUser2]

we took about 1M in credit, and leveraged in a business where the model was laid out, and running. by doing so for every dollar we put in from credit, it generated 2 dollars in revenue, and a a 35% margin then generated about a 66 cents gross profit for fore every dollar put in.

so if you started with 10K you would make about 6K nothing to write home about.
but if you leveraged credit, you could put in 1M and get 660K out....

Much better use of credit and leverage....

Z

 

[SBS.95]

The way I started was a crappy card from capital one. They gave me like a $500 limit. I used it for daily expenses and paid it off multiple times per month. After about a year I applied for a Chase Sapphire card with a $5000 limit. Got it. Dropped the Capital One POS that was only up to $750 at that point. A few months later I got a Amex Green card, I have used this card daily since for personal expenses, you can't carry a balance.

I got my first credit card in May (2013) with a credit limit of $500. After a few months it was automatically upped to $750. A few days ago I put in a request for another $250 increase (looking to build my credit score, plus I've got some big purchases coming up in January). For some stupid reason, I was declined.

How were you able to to go from $750 to $5000 in a year? I know it hasn't been quite a year yet for me, but I always pay my bills 100% in full, on time, and have never carried over a balance or had any disputes. My credit score is over 700, which is considered high for my age.

Plus my income is higher than it was when I originally got the card.

 

[Lathan]

the model was laid out, and running.

But you wouldn't normally just use credit to get a business off the ground, right? Or would you? You only did that because the business was already running and profitable? So in other words you weren't risking wasting the 1M. I'm new to this. Just trying to get it through my head

 

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[DeletedUser2]

depends on how much you believe in what your doing.

if your new, its too risky
if your experienced, it a no brainer.

just depends on where you are in the learning curve.
I wouldnt recomend it for beginners, BUT as soon as you need it, you will wish you had started building it months or even years early.
it takes TIME to build credit, start now. thats the point.


someone I know recently got his biz to the point where if he put in 1 dollar he got 2. boy was he bummed to realize he only had a couple K in credit. NOW he is in a rush to build more. or pay others for it.


Z

 

[Kak]

But you wouldn't normally just use credit to get a business off the ground, right? Or would you? You only did that because the business was already running and profitable? So in other words you weren't risking wasting the 1M. I'm new to this. Just trying to get it through my head

A lesson in a$$ protection. Make sure YOUR BUSINESS owns the debt.

 

[Kak]

I got my first credit card in May (2013) with a credit limit of $500. After a few months it was automatically upped to $750. A few days ago I put in a request for another $250 increase (looking to build my credit score, plus I've got some big purchases coming up in January). For some stupid reason, I was declined.

How were you able to to go from $750 to $5000 in a year? I know it hasn't been quite a year yet for me, but I always pay my bills 100% in full, on time, and have never carried over a balance or had any disputes. My credit score is over 700, which is considered high for my age.

Plus my income is higher than it was when I originally got the card.

I guess banks just like me...

No really, I went from a garbage building credit card from Capital One to a high end credit card from Chase. Totally different lender. I never tried to raise my limit on that first card.

Might be time for you to give a chase or Amex card a shot.

 

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[socaldude]

Also, check this out: Which is better: Getting a loan or selling equity? Giving equity away is a good idea if you are getting a valuable strategic partner but with a loan you pay the same interest and the same principal regardless if your sales skyrocket but with equity you have to share the wealth according to equity ownership. Using credit also sidesteps all the valuation stuff that comes with selling equity. I know that business situations are complex and it just depends if credit or equity is better but If you are a newbie entrepreneur with no track record, credit will usually be the best way to go and sometimes the ONLY way to go. Since most of us here are newbies with no track records, our personal resources like personal savings, personal credit and retained profits from the business will be our only resources to scale and manage. Because otherwise nobody gives a crap about who you are or what your dreams are.

No, credit is not completely necessary to start a business. Most businesses can be started with little to no money but you have to have sales first before you even think about loans unless you know what you are doing. Success is more about how hard you work and how hard you think than it is about how much money you start with. Anyone can save up $5-$10k from their slowlane job or take out a home equity line of credit but very few people can execute and create a business that cashflows thousands a month. The key is to use credit to ASSIST your fastlane or to use credit when you spot an opportunity and you are confident you can execute. They key is to execute and prove the concept first.

A lot of people do this. They take out a big loan and start or buy a business with no due diligence, no market research and no plan of execution. And then the business goes to zero. What good is a $50k loan if you can't execute?

Bottom line is if you have good credit you have access to capital which can help a business tremendously or to leverage fastlane profits.

 

[DeletedUser394]

I don't understand credit.

I get rejected twice (6 months apart) trying to raise my limit on one card by 25%. A month or two after the second rejection I get an offer from Capital One for 3x my limit at the time. I took it.

Then I was offered an Amazon card as part of a Prime promotion.. I applied, then was promptly rejected (about a month or two ago)

Today I go to the bank (ironically to take some of my business away from them) and the teller informs me I'm eligible to DOUBLE my credit limit with them. So I did.

Hilarious.

I now have more credit (not debt; access to credit) than actual capital and assets combined. Only slightly, but still the case.

 

[Tom.V]

I started with a secured card with $300 back in Jan. 2012, now I have access to $50k+ in open personal and business lines. As Kak, Zen, and the others said, either build it up or be prepared to pay someone else to use theirs. It's a must have tool in the Fastlaner's arsenal.

 

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[Lathan]

I forgot to upgrade this. I ended up applying for an unsecured card at my bank (Wells Fargo) and got denied so I went with the secured card.

I got a $300 limit and put my every day expenses (groceries, gas, etc) on the card and as soon as my statement came in each month I paid the balance off in full.

Six months later I got a letter in the mail saying that I would be upgraded automatically to an unsecured card for my "responsible use of the card". Still have the same $300 limit but it's unsecured now so from what I understand that will help my credit score more.

Currently according to creditkarma my score from one company is high 600s and low 700s from another.

Quick question, after I do some research and decide what card I want to upgrade to from here, will it affect my credit if I just cancel this wells fargo card. Personally I don't really want to have 10+ credit cards open (not now anyways). I just want to have one at a time to keep up with.

As a matter of fact, I am so paranoid to miss a payment that even though I THINK I have automatic payments set up... I still pay it off MANUALLY each month just in case. lol

 

[DeletedUser394]

Don't close the account.