A friend, a former Top Gun pilot who flew more than a hundred missions into enemy territory, speaks with reverence about manmade divisions fading away as if they are illusions when you soar high above earth. I want the perceived barriers to excellent business and personal credit to disappear with comparable ease.
We see what can happen to a man as successful as Ed McMahon. His Los Angeles home was on the market for six months before he broke his neck, could not work for the past 18 months, was forced to conserve funds, and ended up in the midst of foreclosure. The potential impact of an income-eliminating crisis is clear. And as the mortgage debacle continues to spread its tentacles throughout the economy, there seems to be widespread anxiety brewing. Don’t allow the challenges of others to create illusions of impossibility in your mind.
The National Federation of Independent Businesses (NFIB) released their annual Index of Small Business Optimism. It indicates that optimism among small business owners is at its lowest since 1980. From a credit perspective, I’ve noticed an edge to readers’ questions, as if they’re unsure of their ability to create excellent credit. This seems to be particularly true for people in the early stage of a small business, especially if they’ve experienced previous problems with personal credit. At the risk of sounding like a cheerleader or Pollyanna, you can do it!
Although recent economic news is easily characterized as depressing, it’s important to remember: in every economic downturn many small businesses thrive. Focus on being one of the success stories. Take these simple required steps to build and maintain excellent credit.
- Separate your business credit from your personal credit. No cross pollination.
- Pay bills on time. Notice your grace period on personal accounts to prevent any accidental late payments. With business credit, pay early when possible to boost your business credit rating.
- Gradually build your credit history, one account at a time. To raise your personal credit scores as quickly as possible, keep the amount you charge below 10 percent of your credit limit on each account. Never charge more than 40 percent of the credit limit on an account. There are no penalties for using your full credit limit on a business account. What is critical is to pay according to terms. If you have Net 30 terms, the payment must be received by the vendor within 30 days of the invoice date. This will earn you an on-time payment score. Payments received after this date will shave points off your business credit rating, day by day, sending you into negative territory.
- Establish a friendly, working relationship with your bank. With tightened credit requirements and the possibility of greater constriction in the future, your relationship with your bank is more important than ever. If you live in a community with banks that are local, rather than regional or national, they usually want to build deep relationships with individuals and businesses in the area. I believe small businesses do themselves a favor by aligning with a local bank that is committed to remaining local and independent.
- If you’re developing your personal credit from scratch, it will take two years of managing four trade lines responsibly before you’ll be able to qualify for a major purchase, such as a house. It’s important to remember you only need four accounts. These can include student loans, auto loans, department store credit cards, or any other account that is reported to the three major credit reporting agencies every month. With business credit, you will want to build up to the 5-3-2 formula — five accounts with vendors you do business with every month, three business credit cards, and two small loans paid in full. For more details, please see my series, You Can Build Awesome Business Credit.
Widespread economic gloom and doom can erode confidence in the most positive person. It’s time to shake off pessimism and cast away any illusions you have about barriers to building and maintaining credit. Move forward with the required actions. And enjoy the benefits you derive from your achievements.
Questions about your own personal or business credit? Send Lynette a confidential e-mail by clicking the “contact” icon in the toolbar at the top of this page.