I remember my first day of freshman year of college as a naive 18 year old with lots of lofty goals. Before I reached the campus bookstore to pick up my required reading list, I was greeted by a sales rep for a credit card carrier, who lured me to her table in the student hall with promises of "no payments for ninety days with approved credit." I signed up, and was immediately approved for $5,000. My education in financial literacy began.
It took almost 15 years to stop feeling the residual effects of that mistake. The other credit cards started bombarding me with offers in the mail. Before I knew it, I had $25,000 worth of credit card debt, no job, and barely making the minimum payments. However, I had a fresh new wardrobe for all of my collegiate endeavors.
Most of the people in my inner circle at the time were all in the same financial situation. Even worse, it became more of a common joke that we all had "bad credit," and we spent most of our time in our 20's trying to get around the issue of personal credit.
However, in my early 30's, it was no longer funny. I was in the process of signing a merchandise lease for my first store and because it was my first business, the lender required a personal guarantee. Now, there was no more laughing -- it was time to take action. The interest rate was high, as I could only qualify for a sub-prime lease with a high interest rate.
I became "obsessed" with cleaning up my past and increasing my credit score. Rather than financing a car, I focused on learning how to use unsecured revolving lines of credit and secured credit cards from my personal bank to increase my score. Within two years, the personal guarantee was lifted and we focused on building the business credit. However, I am still very careful of the use of my credit.
Today, I meet and advise ambitious founders, who are running capital intensive business models, but are struggling to gain access to funding via the Small Business Administration (SBA), seed and/or angel investors. As I review their due diligence package, everything is in order until we get to the financial statement and credit analysis. It is amazing how many people continue to underestimate the impact of their personal credit, and take a reactive approach, rather than proactive.
Personal credit is not just for purchasing homes and cars any longer. If your business is still in the pre-revenue/funding stage, as the founder, your credit score may be the difference that gets you funded.
Think of it this way -- would you want to invest a one million-dollar seed round into a founder who is in collections over a $20 phone bill? The mistakes you made in your late teens/early 20's can continue to impact the value of your business if you continue to ignore it.
Your credit may be impacting the growth of your business. Here are five ways to begin turning it around and take action.
1. Get your credit report ASAP .
Visit Annual Credit Report to order your free annual credit report from the three major credit bureaus. Unlike ordering it through a monitoring service, who may only provide an overview, this is your full transcript. Keep in mind, every bureau reports your credit history differently, so it's important to highlight any inaccuracies and errors annually.
2. Hire an attorney to dispute inaccuracies .
The DIY approach often does more harm than good. Investing in a quality law firm to resolve your disputes will prove to investors that you are taking initiative(s) to clarify unresolved disputes that are affecting your score and history.
3. Monitor your credit utility rate
You can use Nerd Wallet, Credit Karma or My Fico, whichever you are most comfortable with, and monitor your credit utilization rate monthly. Most of these services provide tips to help increase your score by focusing on the items which impact you the most. The more available credit you use, the lower your score will be.
4. Apply for an unsecured revolving credit line or a secured credit card.
It may seem "crazy" to advise you to get out there and get more credit, but an additional line of credit may increase your score by lowering your credit utilization rate. Before you apply, consult with your attorney.
5. Be patient .
Repairing your credit will take time, so start now. Investors and lenders reject deals for various reasons, and credit is one of the most common, but rarely discussed. It will take time to increase your score, so start today.