.
Business Credit Cards - A Credit Score's Best Friend
You have probably already established personal credit...so now it is time for you to strengthen your financial fortress and safeguard your credit score by building business credit.
Business credit comes with good news and bad news. The good news is more times than not it does not get reported on your personal credit report...and the bad news is also that it does not get reported on your personal credit report. That is why it is so important that you have established personal credit before heeding this advice.
Unless you're Microsoft, chances are good that you have to sign personally in order to qualify for a business credit card. But other than the inquiry that shows up on your credit report when you apply for the business credit card, 90% of all business credit cards do not get reported on your personal credit report unless you default on the payment. If you do, then the account will get reported to your personal credit report and your credit score will be affected negatively.
Now why is this good for your credit score?
Well, the credit score only analyzes what it sees on your personal credit report. And given the fact that 30% of the credit score is derived from the ratio between your credit balance and limits on your report, not having a "maxed-out" business credit card showing on your credit report can be a very helpful thing for your score.
For example, let's assume you have $50,000 in revolving credit available to spend. Let's also assume that your credit score is a 730. If you were to go and max out these credit cards the next day, once the balance reflects on your credit report, your 730 credit score may drop to a 650. Now let's look at the same situation where you have a 730 credit score but the $50,000 you spend is on business credit cards that do not report to your credit report. Your 730 credit score will remain a 730 credit score and you will be able to get favorable financing even though you are carrying the same debt load as the previous example where the score dropped to 650. The credit score only scores what it can see; business credit that is not being reported on the personal credit report does not affect the score whatsoever.
But it is important to pay on time - if you do get business credit that shows on your personal credit report even if you are not late, that credit is treated exactly as if it was personal credit and having the business credit will not yield any benefit to your credit score whatsoever.
I suggest building your personal credit first before you attempt to build your business credit card portfolio because you do have to have good credit being reported to qualify for these business accounts. More good news - the credit card companies do not require that you have a business license or a corporation, and the simple classification of being "self-employed" is typically enough to pass muster.
My two favorite banks for business credit cards are American Express and MBNA. A good start would be to apply for a regular American Express charge card that needs to be paid in full each month and also an American Express revolving business card like "Blue for Business" that you can pay minimum monthly payments on. MBNA has a business credit card called Platinum Plus for business, which affords a low rate and a high credit limit. American Express will not report to your personal credit report regarding your business credit card unless you are approximately 120 days late. MBNA on the other hand will report the account to your personal credit report once you become 30 days late.
The flexibility and control that business credit cards give you with your personal credit score are worth their weight in gold, and in many cases will allow you to save countless thousands in interest on your next mortgage by affording you the highest credit score possible.
Douglas Muir, CEO
It's happened to all of us. I'm in the check out line of my favorite department store and as I take inventory of my impending purchases, I know I've gone a little crazy. I tend to justify spending more if it's "on sale", and why is it everytime I shop, the sales are so inviting?! As I lay the heaping pile of stuff on the counter to be rung up, the ever so friendly check out person invites me to save an additional 10%, 15%, or 20% on my purchases today IF, I will only open a store credit card account. It's simple, easy and painless to apply.... My head does the math. Another 20% would mean a lot to today's pocketbook and I'm tempted by the offer... But I know better. Being in the credit repair business keeps me accountable and sane at times because I can't engage in practices I coach others not to do and I know the savings of today, can be the disasters of tomorrow.
So what's wrong with store credit cards? First of all, new credit from department stores are "soft" credit lines. You get a "ding" on your credit report for opening up a new line of credit. By opening new lines of credit, your credit score may actually go down. Secondly, you'll take another "ding" because the available limit is usually a low amount and your new purchases will put the LTV (loan to value) of this new card at a high percentage. For example, if I am offered a $500 limit and make a $400 purchase, I am at 80% LTV. Any credit card with an amount charged on it over 40% of the available credit limit, means you will lose points in your credit score each month it's over 40% LTV. Ideally, you want to keep all your revolving lines of credit (major, store credit cards) below 40% LTV.
A major problem is compound interest. Paying interest on anything does not create an increase in the quality of life. You're a slave to the interest master. On some major purchases, interest is a necessity, like homes and cars. But is paying double, triple or quadruple the price of an item really worth it on a $25 pair of jeans? A good rule is, if you can't buy it with cash, you can't afford to buy it with credit. If you can't pay for it now, can you pay for it later?
Compound interest is an exciting concept when you're on the receiving end, but not when you are on the paying end. Let's look at the example of the Golf Story from the book Debt Hurts, by Will Green and Earl Strumpell http://willgreen.tv/home/index.php?site_config_id=127&page_selection=4611.
Let's say that you and your friend decide to play 18 holes of golf and on hole one, you bet a dime and agree to double the stakes at each hole. So we're applying a 50% compound interest principle to this example. By the third hole the bet would be up to $.40 - really pennies. By the eighth hole the bet would be at $12.80 - still not much money. At the twelth hole, the bet is up to $204.80. By the sixteenth hole, $3276.80 and on the eighteenth hole.... $13,107.20! WOW! Starting from one dime, just $.10. Everytime I see this example it blows my mind. Some credit card companies today charge well over 25% interest, and using the example above at a 25% compound rate of interest, you can still see how much extra you could end up paying for one small item. Add to the interest charges, charges for being a slow or late payer and you've got a receipe for disaster.
Try to do an all cash Christmans this year. Scale down. Remember the "Golf Story" as you shop!
Meg Murphy
Account Executive,
484.375.5484 (O)
484.331.6311 (F)
megmurphy@creditjusticeservices.com
www.creditjusticeservices.com/?ccc=145
Books that challenge me to grow and learn are an all-time love of mine. I have found many helpful books that have aided me in growing personally and in my business. Over this past year I relied heavily on self education. I will be sharing several of the below titles with others as gifts this season.
May you have a Happy and Safe Holiday Season!
Here’s a list of some favorites that have helped me personally:
Enthusiasm Makes the Difference – Norman Vincent Peale
How to Win Friends & Influence People – Dale Carnegie
The Speed of Trust – Stephen M.R. Covey
(For Women) Women’s Reality - Anne Wilson Schaef
Listed below are books that have helped me with my business:
The Four Hour Work Week –Timothy Ferris
The Millionaire Real Estate Agent – Gary Keller
The Ultimate Guide to Network Marketing – Dr. Joe Rubino
Endless Referrals – Bob Burg
Some CJS Related Topic Books which I reference often:
Debt Hurts – Will Green and Earl Strumpell
Capitate Your Kids – Dr. John E. Whitcomb
Good Credit is Sexy – Kristy Welsh
Meg Murphy
Account Executive,
VP of Training and Development
Credit Justice Services
484.375.5484 (O)
484.331.6311 (F)
www.creditjusticeservices.com/?ccc=145
view all blog entries...
Dec 2008
Personal Credit vs. Business Credit
Personal credit and Business credit are 2 different animals. I would like you to review the information below. This will be very useful to you and your clients.
by valeria on Mon Dec 01, 2008 6:55 pm
Business Credit Cards - A Credit Score's Best Friend
You have probably already established personal credit...so now it is time for you to strengthen your financial fortress and safeguard your credit score by building business credit.
Business credit comes with good news and bad news. The good news is more times than not it does not get reported on your personal credit report...and the bad news is also that it does not get reported on your personal credit report. That is why it is so important that you have established personal credit before heeding this advice.
Unless you're Microsoft, chances are good that you have to sign personally in order to qualify for a business credit card. But other than the inquiry that shows up on your credit report when you apply for the business credit card, 90% of all business credit cards do not get reported on your personal credit report unless you default on the payment. If you do, then the account will get reported to your personal credit report and your credit score will be affected negatively.
Now why is this good for your credit score?
Well, the credit score only analyzes what it sees on your personal credit report. And given the fact that 30% of the credit score is derived from the ratio between your credit balance and limits on your report, not having a "maxed-out" business credit card showing on your credit report can be a very helpful thing for your score.
For example, let's assume you have $50,000 in revolving credit available to spend. Let's also assume that your credit score is a 730. If you were to go and max out these credit cards the next day, once the balance reflects on your credit report, your 730 credit score may drop to a 650. Now let's look at the same situation where you have a 730 credit score but the $50,000 you spend is on business credit cards that do not report to your credit report. Your 730 credit score will remain a 730 credit score and you will be able to get favorable financing even though you are carrying the same debt load as the previous example where the score dropped to 650. The credit score only scores what it can see; business credit that is not being reported on the personal credit report does not affect the score whatsoever.
But it is important to pay on time - if you do get business credit that shows on your personal credit report even if you are not late, that credit is treated exactly as if it was personal credit and having the business credit will not yield any benefit to your credit score whatsoever.
I suggest building your personal credit first before you attempt to build your business credit card portfolio because you do have to have good credit being reported to qualify for these business accounts. More good news - the credit card companies do not require that you have a business license or a corporation, and the simple classification of being "self-employed" is typically enough to pass muster.
My two favorite banks for business credit cards are American Express and MBNA. A good start would be to apply for a regular American Express charge card that needs to be paid in full each month and also an American Express revolving business card like "Blue for Business" that you can pay minimum monthly payments on. MBNA has a business credit card called Platinum Plus for business, which affords a low rate and a high credit limit. American Express will not report to your personal credit report regarding your business credit card unless you are approximately 120 days late. MBNA on the other hand will report the account to your personal credit report once you become 30 days late.
The flexibility and control that business credit cards give you with your personal credit score are worth their weight in gold, and in many cases will allow you to save countless thousands in interest on your next mortgage by affording you the highest credit score possible.
Douglas Muir, CEO
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Beware of Compound Interest!
Resist the Temptations of new Opening Store Credit Card Accounts!!!
by valeria on Mon Dec 08, 2008 7:39 pm
It's happened to all of us. I'm in the check out line of my favorite department store and as I take inventory of my impending purchases, I know I've gone a little crazy. I tend to justify spending more if it's "on sale", and why is it everytime I shop, the sales are so inviting?! As I lay the heaping pile of stuff on the counter to be rung up, the ever so friendly check out person invites me to save an additional 10%, 15%, or 20% on my purchases today IF, I will only open a store credit card account. It's simple, easy and painless to apply.... My head does the math. Another 20% would mean a lot to today's pocketbook and I'm tempted by the offer... But I know better. Being in the credit repair business keeps me accountable and sane at times because I can't engage in practices I coach others not to do and I know the savings of today, can be the disasters of tomorrow.
So what's wrong with store credit cards? First of all, new credit from department stores are "soft" credit lines. You get a "ding" on your credit report for opening up a new line of credit. By opening new lines of credit, your credit score may actually go down. Secondly, you'll take another "ding" because the available limit is usually a low amount and your new purchases will put the LTV (loan to value) of this new card at a high percentage. For example, if I am offered a $500 limit and make a $400 purchase, I am at 80% LTV. Any credit card with an amount charged on it over 40% of the available credit limit, means you will lose points in your credit score each month it's over 40% LTV. Ideally, you want to keep all your revolving lines of credit (major, store credit cards) below 40% LTV.
A major problem is compound interest. Paying interest on anything does not create an increase in the quality of life. You're a slave to the interest master. On some major purchases, interest is a necessity, like homes and cars. But is paying double, triple or quadruple the price of an item really worth it on a $25 pair of jeans? A good rule is, if you can't buy it with cash, you can't afford to buy it with credit. If you can't pay for it now, can you pay for it later?
Compound interest is an exciting concept when you're on the receiving end, but not when you are on the paying end. Let's look at the example of the Golf Story from the book Debt Hurts, by Will Green and Earl Strumpell http://willgreen.tv/home/index.php?site_config_id=127&page_selection=4611.
Let's say that you and your friend decide to play 18 holes of golf and on hole one, you bet a dime and agree to double the stakes at each hole. So we're applying a 50% compound interest principle to this example. By the third hole the bet would be up to $.40 - really pennies. By the eighth hole the bet would be at $12.80 - still not much money. At the twelth hole, the bet is up to $204.80. By the sixteenth hole, $3276.80 and on the eighteenth hole.... $13,107.20! WOW! Starting from one dime, just $.10. Everytime I see this example it blows my mind. Some credit card companies today charge well over 25% interest, and using the example above at a 25% compound rate of interest, you can still see how much extra you could end up paying for one small item. Add to the interest charges, charges for being a slow or late payer and you've got a receipe for disaster.
Try to do an all cash Christmans this year. Scale down. Remember the "Golf Story" as you shop!
Meg Murphy
Account Executive,
484.375.5484 (O)
484.331.6311 (F)
megmurphy@creditjusticeservices.com
www.creditjusticeservices.com/?ccc=145
Happy Holiday Season!
I’ve caught the holiday spirit. Yesterday we decorated our Christmas tree and this afternoon, we will begin our holiday baking. The Christmas cards that still need to be addressed are stacked on my dining room table, and my bed is covered with gifts yet to be wrapped.
by valeria on Tue Dec 16, 2008 2:24 am
Books that challenge me to grow and learn are an all-time love of mine. I have found many helpful books that have aided me in growing personally and in my business. Over this past year I relied heavily on self education. I will be sharing several of the below titles with others as gifts this season.
May you have a Happy and Safe Holiday Season!
Here’s a list of some favorites that have helped me personally:
Enthusiasm Makes the Difference – Norman Vincent Peale
How to Win Friends & Influence People – Dale Carnegie
The Speed of Trust – Stephen M.R. Covey
(For Women) Women’s Reality - Anne Wilson Schaef
Listed below are books that have helped me with my business:
The Four Hour Work Week –Timothy Ferris
The Millionaire Real Estate Agent – Gary Keller
The Ultimate Guide to Network Marketing – Dr. Joe Rubino
Endless Referrals – Bob Burg
Some CJS Related Topic Books which I reference often:
Debt Hurts – Will Green and Earl Strumpell
Capitate Your Kids – Dr. John E. Whitcomb
Good Credit is Sexy – Kristy Welsh
Meg Murphy
Account Executive,
VP of Training and Development
Credit Justice Services
484.375.5484 (O)
484.331.6311 (F)
www.creditjusticeservices.com/?ccc=145
