Talking Personal And Business Credit With Real Estate Investors

by | Apr 21, 2021 | Business Credit

Jordan joined Akin Developments in their monthly Real Estate Meetup in Baltimore to talk about building personal and business credit. Most real estate investors know credit is very important to their businesses because many times it is hard to complete a full renovation with cash on hand, but if you have great credit cards that you can use to help you in the remodeling process then you can save yourself a ton of money! I wouldn’t recommend using personal credit cards for remodeling houses because these remodels tend to be very expensive, and you’ll see your Credit Card Utilization rise which will damage your personal credit score. This is why it is important to remove your personal credit from your businesses and focus on obtaining business credit.

In this discussion you will first learn how to evaluate your own personal credit score and what factors are negatively affecting your score. The six components that make up your personal credit score are:

1. Payment History

This is the percentage of payments you have made on time. The goal is to be 100% on time payments with no late payments. This component makes up 35% of your score and is the most important part of your credit score.

2. Credit Card Utilization

The total amount of available credit used compared to the total limit of all your credit cards combined. The lower the better, under 9% is ideal. This makes up 30% of your credit score.

3. Derogatory Marks

Collections, tax liens, or civil judgements on your credit report. This category does not make up a percentage of your score, but if you have them it will negatively affect your score by 50+ points. They are removable, but it takes some work, and you’ll need to get advice from a credit professional. Do NOT pay collections without a plan in place or you will be highly disappointed that they will not come off your credit reports for 7 years.

4. Age of Credit History

The average age of your open accounts including credit cards, car loans, mortgage loans. The higher your credit age, the better with 9 or more years being ideal. There are strategies to increase your credit age without waiting for time to pass such as being added as an authorized user. Credit age makes up 15% of your credit score.

5. Total Accounts

Total number of open and closed accounts. Having a variety of credit accounts totaling 21 or more is ideal. These could be credit cards, department store cards, trade lines, car loans, mortgage loans, etc. Total accounts make up 10% of your credit score.

6. Hard Inquiries

Number of times you have applied for credit in the last 24 months. Keep this category as low as possible but know that over time your score will rebound and there are strategies to remove inquiries. Inquiries make up 10% of your credit score.

There are so many strategies and techniques to improve your personal credit score, you just need to educate yourself on what affects your score. First and foremost work on getting to 100% payment history by asking forgiveness on any late payments you may have incurred. The second most important step is to dispute and remove derogatory marks and collections. I would highly recommend hiring a credit coach on this topic. There are right and wrong ways to file your disputes. Do NOT dispute them online and do NOT call in to dispute them. These companies will record your conversations and if you say one wrong thing you will be stuck with the collections for 7 years. I teach my credit clients how to send letters that I’ve developed which actually state the laws around the Fair Credit Reporting Act and use these laws to dispute properly. If you need more information on personal credit, then book a call with me and let’s see how I can help you!

Once you have mastered your personal credit and your score is above 700, you can start taking advantage of business credit. Yes, you do need a good personal credit score before you start applying for business credit because the goal is to get high limits for your business credit cards so that you can take all of your personal credit cards out of your business and have enough credit to be able to make the purchases that you need. The first step to getting business credit is to set up your company properly and get your business listed on all the services that will show that you’re a legitimate business. This would include Google, 411, Yellow Pages, NAV, Dun & Bradstreet, Experian Small Business, and Equifax Small Business. It is good practice to keep red flag words or very niche words out of the company name that you will be applying for business credit. Words like “Investments”, “Funding”, “Capital”, “Real Estate”, “Properties” will make banks and lenders a bit uneasy. If you already have a company with one of these words, it’s not the end of the world, but just know there may be some additional questions asked when you apply for credit.

After your business is set up you can start applying for trade lines like Grainger, Quill, U-Line, Gemplers, Seton, Wayfair, Graybar, Go Promos, Medical Arts Press, US Plastics, Summa Supplies, Laughlin & Associates, MSC Industrial Northern Safety, Mouser Electronics, Digikey, A Printer 4 You, Venture Logix, Paramount Payment Systems, Monopolize Your Marketplace, 4 Imprint, Boss Bookkeeping and Business Service, HD Supply, Market Click Internet Marketing, Sycom, Office Depot, Valero, Home Depot, BP, Exxon Mobil, Macy’s, Cabela’s, etc. These trade lines will report to your business credit profile and show bigger lenders that your business can obtain credit can make on time payments. Once you’ve established multiple trade lines, preferably 10 or more then you can apply for business loans.

In conjunction with tradelines, you can start acquiring business credit cards from bigger banks like Chase, American Express, US Bank, Bank of America, Discover, Capital One, Citi, etc. Most business credit cards and products will not report to your personal credit scores (Capital One and Discover Business Cards will report to your personal credit). This is great news for business owners and real estate investors because you can transition from using personal credit cards to business credit cards and loans, keeping your personal credit scores intact and unharmed! Chase Bank has amazing business credit cards that will reward you with travel points and cash back for spending in your business. I would highly recommend getting familiar with Chase and AMEX business credit cards, especially if you’re a frequent traveler. To see my personal Business Credit Card Rankings refer to the article Business Credit Card Road Map – Crist Credit Consulting

I no longer use cash in my business outside of paying my credit cards off. Everything I purchase goes on a credit card, never a debit card, but you still must keep track of your spending and make sure you do not charge more to your credit cards than you have the ability to pay for with the cash in your checking account. Use a simple spreadsheet to keep track of your cards, limits, and spending. Be sure not to overspend on your credit cards just because you have large enough limits to do so.

Watch the presentation between Jordan and the Baltimore Real Estate meetup. If you need help developing your personal and/or business credit then schedule a call, Jordan would be glad to help you reach your credit goals and dreams!

Learn everything you need to know about harnessing the power of Business Credit

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