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How a card can help to grow a startup and credit

Erica Sandberg

May 10, 2016

Q Hi Erica,

I need to know if it is better for my credit to get a credit card on top of my student loans, or would it drag my score down more? I’ve got a new business that is going to take off (like those businesses you see on “Shark Tank”), and I can’t afford to mess anything up right now.  — Aiden

A Dear Aiden,

I presume you want to be eligible for a loan to finance your venture. If so, yes, it is important to start building a credit history and then maintain a positive credit rating. Lenders will be checking your credit reports and scores to see if you’re a low risk customer. If you are (and you have the means to repay whatever you borrow), you’ll be more likely to be approved for the loan, and the terms will be favorable.

If you haven’t had a credit card before, adding one to your portfolio should raise your credit scores. Both FICO and VantageScore factor in the variety of credit products you have and use those to determine your credit score. For FICO, your credit mix is not a big factor (10 percent of your score), but credit mix carries more weight in your VantageScore. Since you don’t know which score the lender will pull — and some check both — it’s a good idea to cover your bases. That means you need to show that you can handle loans and lines of credit. You’ve got the installment loan, so now it’s time to obtain a credit card.

To know what kind of credit card to pursue, first conduct your own credit check. Pull your credit reports for free from annualcreditreport.com and make sure there are no errors that would negatively affect your credit score. If you see anything that’s wrong, dispute it with the credit reporting agency and wait about 30 days. That’s the amount of time it takes to conduct an investigation.

When you’re sure everything in your credit report is correct, get your scores. FICOs are available from the company’s website for about $20 per credit report (TransUnion, Experian and Equifax). The VantageScore, which is a scoring system owned by the credit reporting agencies is at no charge at my.creditcards.com. Both scores have the same scale of 300 to 850. Higher numbers indicate lower lending risk. In general, credit scores above 650 are good, and scores greater than 750 are excellent. If you’ve been handling your student loan responsibly by paying on time every month and have also reduced the balance, you should be in a decent position.

Whatever your credit scores are, you probably can qualify for some type of credit card. Secured cards are easiest to get because you put down collateral. These cards are great for people who are just starting out (new to credit or have a thin credit file) or who have negative data listed on their credit reports. To get a secured card, you will need a form of income. An idea for a business — no matter how revolutionary it may be — won’t cut it. You need a steady flow of cash from somewhere, which typically means a job.

The higher your credit scores and income, the better your credit card options will be. There are vast numbers of unsecured credit cards on the market, but if you’re looking for one that will be right for a small business, that’s where you should focus your attention. Business credit cards tend to have helpful features, such as automated organization of expenses and specialized customer service.

When you get your card, be sure to use it regularly and send your payments by the due date. Keep your debt to zero or very low. This will not only raise your scores, but will ensure you aren’t overpaying in finance fees.

After wielding your card responsibly, you will have proved yourself creditworthy. Lenders and investors alike will know that you can handle money and credit. Whether your product is worthy of “Shark Tank” is another story, but I hope it is!

Got a question for Erica? Send her an email.

SEE ALSO: Your guide to picking the right credit card

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