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Those involved in real estate “fix and flip” deals will routinely inform associates, partners, and other members of their network that you must “guard your credit score, just as you would guard your life.” They say that your ability to obtain credit is essential to wealth building aspects.
While I’m not involved in any real estate “fix and flip” deals, I certainly agree that as any type of entrepreneur, you should “guard your credit score just as you would guard your life.” You should build it, protect it and monitor it, with strategic plans in place to continue growing it as you move forward.
From a national standpoint, here are the credit range standings:
- 800 to 850: Exceptional Credit (about 19% of the US population is in this range)
- 740 to 799: Very Good Credit (about 23% of the US population is in this range)
- 670 to 739: Good Credit (about 22% of the US population is in this range)
- 580 to 669: Fair Credit (about 19% of the US population is in this range)
- 300 to 579: Poor Credit (about 17% of the US population is in this range)
Knowing that your credit score range is worse than 83% of the country is certainly bad news and I personally know how that feels—10 years ago I sat in the “poor credit” category myself. However, the good news is there are financing options available even though you currently sit in the lowest credit range tier. For this article, I will cover those options, as well as, go into steps that you can take to build your personal credit profile.
Crowdfunding
There are a number of Crowdfunding sources out there where you can raise money from friends, family, associates, and strangers who just want to support your cause, even if said cause is your startup venture. GoFundMe, a crowdfunding site that has raised well over $3 billion for various causes, is one option. In addition, you could raise up to $1 million during a 12 month time period from intermediaries such as NextSeed and SeedInvest, which are a part of extensions to the JOBS Act where individual investors pool money together to invest in startup ventures.
Trade Credit and Vendor Installment Credit
Trade credit is perhaps the largest sources of business financing in the country, as vendors/suppliers give you 10 – 120 days to pay for materials, goods, and services that you used for commercial purposes to start or grow your business. All of this is usually provided without a credit check.
Vendor installment credit is another option, where vendors will once again give you the materials, goods, and services needed to operate your commercial business, but allow you to make installment payments over time (sometimes up to 2 years), without a credit check.
Trade credit and vendor installment credit programs can be provided from a variety of business services related providers, your best option is to reach out to a vendor of choose, explain the situation, your business plan, and find a vendor within that circle that’s willing to setup one of these types of programs.
Accounts Receivable Factoring
Let’s say you have used Trade credit to be able to obtain the materials, goods, and services to provide your products/services to customers, however, your customers might also prefer to pay you using trade credit, rather than paying you everything upfront. It might take 30 – 120 days or more to receive full payment, and when you are just starting out (operating on a shoestring budget) this can be worrisome.
Here’s where accounts receivable factoring can help. This would provide an advance on the outstanding receivables with a factoring company purchasing your outstanding receivables, advancing around 80% – of the amount to you upfront. Once your client(s) complete payment within, let’s say, 90 days, they would provide the remaining 20% minus a discount fee.
In terms of places to go to obtain accounts receivable factoring, you can obtain this program from a number of alternative places including my organization, 1ST Capital Loans.
Government Student Loans
As long as you are enrolled in U.S. based regionally accredited college that qualifies for Title IV, these loans can be taken out to help cover a portion of tuition, living expenses, or pretty much anything else you choose to spend the money on as they are classified as “personal loans guaranteed by the US Government”.
There are no credit checks with these loans and they have very competitive rates. Undergraduate loans are 3.76% with Graduate loans coming in at 5.31%, which considering there are no credit checks, income requirements, nor debt-to-income ratio calculations, these rates make for a pretty solid loan. So what you would want to do is strategically pick a U.S. based regionally accredited college with a great reputation, low tuition, and a college major that you are looking to enroll in. I recommend Western Governor’s University, which is regionally accredited, was established by over 19 U.S. Governors, offers a diverse array of college majors, and sets their degree up on a competency based program which allows for a lot of acceleration and better time management to complete your degree, while managing other aspects of your life/business.
From Poor To Very Good
To improve your personal credit score, you want to implement these rules and keep them over time:
- Never miss a payment, never get a judgment, never get a tax lien, and never file bankruptcy. Pay off current negative items and wait until they either fall off the report, or try to work out a deal with the bureaus to remove them early.
- Immediately begin establishing good credit using secured credit cards as well as shared secured loans that can be found at many credit unions. Basically you will be provided a credit card or loan using the funds deposited into your savings/checking account as security. The credit union will report the credit card and loan’s payment history on your credit report.
- Once you move from poor To fair, you can now begin applying for various credit cards which more than likely will include an annual fee. Once you move from fair to good, begin applying for credit cards without any annual fees. Note: avoid using your credit card for business expenses! You’ll want to keep your personal and business finances separate—starting with a business credit card for business expenses is a good way to go.
- Don’t forget business credit: Business credit is important to build as well, you just have to go through steps working with major business credit bureaus (like D&B) to create the profile, then make sure to work with vendors that report to it. Business credit allows you to keep most of the commercial financing aspects off of your personal report, opens you up to higher rounds of funding from creditors, and allows you to limit the signing of personal guarantees. Learn more about checking your business credit score with Nav.
This article was originally written on January 25, 2017 and updated on October 11, 2019.
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