I got my LLC yesterday and am pretty much ready to go after I set up a business checking account the next day or two.
The question I have is: Should I get a specific credit card for business purposes only or is just dedicating a card that I have already to only business purchases the best idea?
I do have a respectable amount of credit but I did get a BK 7 discharged a couple years ago, so how much additional credit I can get might be an issue.
Any thoughts on this?
TIA
It’s OK to use an existing card if you want to give a creditor a direct path through the LLC.
In other words…
get a card under the company’s tax ID number.
don’t use it for personal purchases
don’t pay it from personal funds
If you’re looking to establish business credit separately from your personal credit you need to follow a systematic approach something like this:
1)Make sure your entity is established correctly with proper business licensing, business phone & email, physical address (no P.O.s or virtual offices), EIN, State Tax ID if applicable, business bank account, etc (bank lenders check these things),
2)Open a D&B account,
3) List your company on various registeries,
4)Establish trade accounts with companies who give credit lines (however small) w/o personal guarantees AND report to D&B, Experian Business, etc (there is a lot of them out there),
5)Pay the trade lines early EVERY month (after a few short months you will have a D&B Paydex score that is very good – above 70),
6)After you have established a good Paydex number, apply for a cash line of credit w/o a personal guarantee (there are a lot of banks that will do this),
7)Make the “cash line” monthly payments early every month,
8)Keep growing your cash lines – within a year to 18-months you should have at least $200K in trade and cash lines of credit that do not require a PG or personal credit report.
There are other steps as well (and times when a PG must be used) but this the jist of it.
Bottom line - like BLL & mcwager say, don’t mix personal with business.
Now that you’ve opened your LLC, you should start getting credit card offers. Best to start sending them in. Make sure they are real business accounts that report to your business credit (Experian Bus, D & B) and not to personal credit. Usually you have to give your personal info (SS, address, DOB) but that’s just a guarantee, like a co-signor, and doesn’t nec. mean they’ll report to your personal credit. Most true business cards don’t report to personal credit–I monitor mine, so I know this–unless you default. Some are really personal cards masquerading as business cards (WaMu is notorious for this), so beware of that trick. If you’re unsure, ask, and if the phone person can’t answer, ask for a supervisor who can. This is important, and can mess up your personal credit.
Maybe my experience can help. #1 of garypettee’s list and paying cards on time is all I ever did, I think that’s the most important. I always pay 20% over min payment on all cards (shows them you can handle your debt); all my card balances are BTs and advances of the 0-4.99% kind, it’s just my working capital. Note that income is one thing the CC companies cannot really verify, and I admit that I may have been overly optimistic at estimating my income on the CC applications; guy’s gotta be positive, right? Isn’t $260k about what I plan to make this year? In the three years since getting my first LLC, I have $284,000 of credit (current balance $111,000) on 19 business cards (mostly Chase, Citi, Amex) and $100,000 on ten personal credit cards (current balance $33,000). Also four (personal) lines of credit totalling $188,000 (current balance zero). Net worth is just over $1.2m, and my cash flow from rentals and leases more than supports my payments. My highest net income so far has been $60,000, yet my credit scores are all mid 700s. So if you manage credit well, you can amass a nice credit portfolio from which to draw.
Bottomfeeder, that was some really great information!
The only thing I take exception to is that I don’t recommend using Personal Guarantees (PG) for business credit of any type if you don’t absolutely have too. Build your business credit w/o the PGs whenever possible. If something goes tragically wrong a PG is just one more thing that brings the liability closer to you personally.
If you PG something for the company and the company can’t pay (for whatever reason) the creditors can go after your personal assets in the blink of an eye and your LLC/Corp can’t do much about it. I’m no AP expert, but giving a PG on your LLC loans & credit lines, when you don’t absolutely have too, doesn’t seem to be a good approach when it comes to protecting your personal assets from your business credit dealings.
In addition, when your building business credit using PGs for everything, it will likely become a requirement for much of the new credit you apply for. Creditors see you’ve given it on everything else and then expect it from you.
A PG given to an entity other than yourself will also decrease your own personal borrowing capabilities (tie up your personal credit). Many times a PG’d new credit line for your business will also require a Hard Pull of your personal credit reports. Every time your CR is pulled more than two times per year it will reduce your personal FICO score by anywhere from 5 to 20-pts.
On personal credit cards it’s best to keep your Debt to Credit Ratio between 10 and 30% of your total revolving credit. It doesn’t help your FICO score to pay them completely off. And, NEVER use your personal credit lines to do any direct purchases on behalf of your LLC/Corp. Loan cash to the LLC by making a formal, recorded, resolution allowing the LLC member to do so at a nominal interest rate.
On building your business D&B Paydex score the only thing that really matters is your payment history (it’s not how much you pay, but WHEN you pay).