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Summary:

Congratulations, founder! You’ve got a functioning site, a splash of capital, and a game plan for revenue — or maybe it’s a treasure map. Hopefully you’re on your way to achieving some personal liquidity, either through cash flow, or perhaps by selling some equity in your […]

Congratulations, founder! You’ve got a functioning site, a splash of capital, and a game plan for revenue — or maybe it’s a treasure map. Hopefully you’re on your way to achieving some personal liquidity, either through cash flow, or perhaps by selling some equity in your business. But I’m willing to bet that it’s more likely that you’re about to double-down on your startup and layer-up the debt. Either way, I’ve prepared for you an entrepreneur’s guide to amping up your personal credit rating — even in the midst of the current “credit crisis” at commercial banks on Wall Street.

Trust me, as your business develops, and your need for capital grows (and it will) hacking your founders’ credit rating could be increasingly valuable to your startup.

I’ll start with some speed bumps that can damage your credit rating.

7 Things you Should Never Do as a Founder:

  1. Never personally guarantee a loan to your company.
  2. Never get a company credit card tied to your social security number. Instead get a credit card where all of your business expenses are on it.
  3. Never sign a doc without a date embedded within your signature
  4. Never finance your company’s T&E. Manage cash flow by negotiating a small advance on expenses.
  5. Never daisy chain into a “friends and family” cell phone program to try to save money. Such operating costs need to be tied to the company directly. One big iron rice bowl of cell phone minutes is a train wreck of overage charges.
  6. Never ignore the horse (or, in your case the cheap alternative to the horse, a.k.a the donkey). Dumbest man in Babylon said, “Once I get rich, I’ll get good credit.” This puts donkey before cart. You’ll never get rich if you have bad credit because the pressure of solving short term money problems clouds good business judgment. (Oops! I mean obliterates judgment.)
  7. Never close an account. Your rights are preserved to dispute when you are a card member. This far outweighs the negative of “credit line outstanding.” If you’d like to be thorough, reduce your credit line but keep the account open. Sample letters are here.

Now…

5 Things You Should Always Do to Amp your Credit Rating

  1. Always manage your company’s travel and expenses by offering a $500-2,500 advance for travel and entertainment. In other words, forward manage these expenses.
  2. Always take care to determine good loans from bad loans. Good ones are educational loans. Bad loans are credit cards. Don’t momentum borrow.Always live by the 70-20-10 rule of credit. Doctors and lawyers have some of the worse credit. The reason is irregular cash flows. 70-20-10 is where your check is allocated 70% toward expenses, 20% for investment and 10% for other.
  3. Always write in to your lender or credit bureau about a dispute. Never never call. Never call. Only writing letters preserves your rights under Fair Credit Reporting Act and Fair Credit Billing Act.
  4. Always dispute bureau data between Nov and Jan. Its the time period most likely to succeed because bureaus have a 30 day max and with all the people on vacation, letters slip.
  5. Always prioritize organization. Use a bright red folder and mark due dates and dates paid. Or you can use a reminder service like duck9 which sends SMS reminders of billl due dates to your phone.

My Ultimate Hack (in the tradition of saving the best for last):

People who have no credit history, or have one in rapid decline, can hack one up. Here’s how: get two credit cards (starts two tradelines for your credit report) and charge $20-30 a month. Pay on time and wallah: a credit score of 750! The key is this: in months that you don’t owe any money, pay the bank $30 (via check) anyway. Your report will get credited for a “one,” which means ON TIME versus and “x” which means no payment due/no payment made. Did you know that credit bureaus make no distinction between $25,000 paid on time, and $25 paid on time?

So this is how you can use archaic credit rules to your advantage. More is available in my mentor’s book, Ultimate Credit Handbook by Gerri Detweiler. I used this book to credit-educate college students at my first company, United College Marketing Services (UCMS). I think founders should read it, too.

Larry Chiang is the founder of Duck9, which offers “deep underground credit knowledge,” meaning Duck9 educates student borrowers on how to establish and maintain good credit, and endeavors to graduate them with a FICO over 750. Read more about Larry and UCMS in the Oct. 15 issue of Business Week.

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By Larry Chiang
  1. Very interesting article, thanks!

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  2. How does a new company get it’s own credit card (let alone two?)

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  3. [...] Hack Your Startup Credit RatingDumbest man in Babylon said, Once I get rich, I ll get good credit. This puts donkey before cart. You ll never get rich if you have bad credit because the pressure of solving short term money problems clouds good business judgment. … [...]

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  4. Wallah : in Arabic means “I swear by God” … ::) .. In your case , I’ll take your word for it .. Your last and best hack is no doubt a tried and true one .. Thanks for the neat list .

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  5. I was searching for ‘card credit student’ at google and got this your post (‘ur Startup Credit Rating « FoundRead’) in search results. Not very relevant result, but still interesting to read :)

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  6. @ Advice Network…
    Q: How does a new company get it’s own credit card (let alone two?)
    A: companies have a tax ID number which is the business’ social security number. Your goal is to build credit in your Tax ID number.
    Here are some thoughts/tips:
    - Get a credit card from the bank that does your business checking account
    - Leverage the vehicle lease as a way to build credit in your business name
    - Start with asking for small lines of credit for your business
    - Get some revenue in the door (something you should spend 80% of your time doing) and borrow against those receivables
    - Get lines of credit at office supply, printer, cell phone company to get your D&B
    - Opt – In for D&B info base by setting up an interview and showing audited (or even unaudited!) sales figures / income statements
    - Borrow against assets to get D&B lines of credit. One method that used to work was borrowing $1000 against a company car that the company owned outright. Make the term of loan to be 12 months and your start-up company is on the credit grid
    - Get some VC financing and similtaneously establish a line of credit at Peninsula Bank or Silicon Valley Bank
    - Spend less of your time figuring out how to scam the system and more time bringing revenue in the door. When you get to about $100k in revenue a month, bankers will call you to give you lines of credit. This should be what your mind is focused on.

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  7. [...] much makes me the guy on manipulating FICO. This applies to you, believe me. See my earlier post, Hack Your Startup Credit Rating. The threatened lawsuit with Fair Isaac is here. In short, good credit is good for [...]

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  8. [...] Chiang is the founder of Duck9, and UCMS. He is an expert at FICO scores, how to Hack Your Startup Credit Rating, revenue generation, cash flow … oh and: dating. Read more about Larry in the Oct. 15, 2007 [...]

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  9. [...] 9. Treasure is a tool for war, too. When you get big enough to threaten another business, their gloves will come off. I’ve done battle with Oak Brook Bank (for not paying commission), Fair Isaac (for threatening to sue because my company, duck9 credit educates people about FICO), and others. Founders with no treasure war chest will cow-tow to every legal threat. Me? I’m 9 for 9 in court. I plan on batting 1.000 thanks to my “treasure management.” 10. Pull some treasure off the table when you can. Every Friday is a mini-liquidity event for me and Baxter. I take $, and eat it somewhere yummy, like Madison and 5th (in Palo Alto, Calif.) and Baxter gets a treat. We celebrate right in the Bank of America lobby. 11. Manage your cost of treasure. In the U.S.A., cost of funds is directly dependent on a 1970 technology called FICO. The higher your FICO score, the lower your interest. Read this post for more on how to manage your startup Credit rating: Hack Your Startup Credit Rating. [...]

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  10. [...] and Hack Your Startup Credit Rating. [...]

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