Search the internet for “how to build credit” and you will surely find 1,000 stupid articles on how to build credit. But in this particular stupid article I will get down to the brass tacks of credit building.
This is my no bullshit business credit guide.
There are 3 types of business credit to be concerned with for a new business owner.
1) Your personal credit
2) Your business to business or trade reference credit
3) Your personal financial credit score
1) Personal Credit
Call your parents or grandparents or best friend right now and tell them you need $1,000 cash in the next hour, that you can’t explain why and that you will pay them back tomorrow. That is your personal credit score. Do people think you are a smart conservative individual who can be counted on to repay their debts? Or do people think your a dumb unreliable fool. Personal credit is the most important form of credit. Personal credit within family and friends was the major source of credit besides pawn shops before the rise of large banking institutions.
Personal credit is not something you will use to conduct business but it is a very important factor in your future success. If you cant get the people who love you and care whether or not you succeed loan you the money then maybe you are to dumb to make it. Or maybe you haven’t worked hard enough to build your credibility.
Try building your credibility on a personal level everyday. This may take several years so be patient.When you think it’s feasible ask an older relative or friend for a loan of $5,000.00 for a 1 week period. Take that money and deposit it in the bank. Wait a week and pay them back $ 5,500.00 I know the exercise sounds dumb but after you have done this to a few close family and friends it will change the way you are viewed entirely. Next time you ask for a loan at a family gathering you can watch everyone jump out of their chair and run for a checkbook. Your credit is not something you will use everyday, but when you find a great deal on a building and need a co-signer or need to post a bond for a big job you can rest assured that you have built the groundwork of credibility to ask for help.
2) Business to Business Trade Credit
This is similar to the one above but because of the legal environment is actually fairly easy to obtain. Most businesses in the construction industry will supply contractors on credit terms of 30 days if you have been buying their products with cash for a while and recognize you have been purchasing for a while. They will also extend generous credit terms to you if you give them the information of the project on which you are working. With this they can serve a preliminary notice and secure their debt with an encumbrance on the property. Business to business credit often expands and contracts unwillingly depending on the liquidity of the traditional credit market ( think bank loans) This is my preferred credit source for job materials if credit is needed. These people will lend to you if the LIKE YOU. As in… do you seem like a competent professional? If they think yes then they will give you credit terms.
3) Personal Financial Credit Score
This is your credit score between 0-700. It affect your ability to apply for credit through financial institutions such as banks and credit card companies. This category is a balance of two forces your credit score + economic conditions = credit available. By using and paying down regular credit accounts you can gain access to better terms as time goes on. These credit accounts include everything from cell phone bills, car payments, credit card payments or a mortgage etc . On the other side of the coin the prevailing macro financial situation of the economy affects your individual credit as well. In times of too much credit where anyone can get a home loan or credit card with a high limit you should start limiting your credit usage. These times are always followed by periods of limited credit where no matter how good your credit score there may be no money to lend. Building this credit is important and should be worked on like any of the above.
It’s important to work on credit at all levels. A great way to build credit is to do a job through the supply house, pay them with your credit card( after the customer pays you) then to pay off your credit card. Remember credit is about earning people trust. It’s easier to damage than to build. Just take small steps everyday.