Investing is a powerful way to build a financial future for yourself, but investment requires capital to utilize in the first place. Since many people, like young college students, don’t have the capital to invest, building your credit a valid way of obtaining the money you need to start investing now, and reaping the rewards later.
Today, we’ll look at several ways to start building credit when you’re young, so you can invest in the opportunities you know to be sound ones.
3 Reasons To Build Credit For Investing and How to Do It
For starters, it’s important to remember that when it comes to a business venture like investing, you should keep your investment finances separate from your personal ones. Let’s take a look at some of the main reasons why this is a smart approach:
1. Keeping a Professional Image
If you want to be taken seriously as an investor, you need to create a professional image of yourself. Serious investors want to be taken seriously. To do this, credit cards, checks, and loans for investing should all be done in a separate business name to illustrate your professional image.
A simple LLC in your name, for example, or something that is related to your investment focus, will make you look more serious in the eyes of the people, products, or startups you’re investing in.
2. Business Credit
If your business is focused on investing, you’re going to need credit to get things off the ground. To invest and grow your returns, you need to have the option to obtain more capital at a moment’s notice. For larger investments and loans, you’ll need some sort of credit built up so you can get approved for these loans.
If you don’t have a separate credit for your investment business, you’ll be putting your own credit on the line. Not only will this affect your credit score, but if things go south, your personal credit will suffer as a result. This is why it’s better to have the investment business in a separate name.
3. More Organization
Making investments and tracking your returns is complicated enough without the need to mix everything together in the same account. By separating your spending for investments, and your personal spending, you can quickly pinpoint how much has been used for either venture.
You can also easily see how much you’ve received in returns, giving you a better look at how your investments are progressing.
How to Start Building Business Credit
So, you’re on board with the idea of building credit for your investments. What’s the next step? For starters, you should separate your business and personal finances like we’ve outlined above. This will allow you to protect yourself from risks that come with using your personal credit.
This also becomes important when you're bringing partners into the mix. To start with building your separate investment credit, you should form a legal entity to invest under. I personally recommend an LLC that uses your name or something you want to brand as your investment property.
From here, you should work to build credit by following these tactics. Keep in mind, that if your credit starts to falter for one reason or another, you can consult credit repair services compared by Debt Steps to get in back where you need it.
Keep Your Information Current
Credit bureaus utilize different methods for collecting information about businesses, than they do for individuals. In fact, many of them have completely separate formulas for calculating scores in business, according to consultants from Experian.
You should maintain your information with all the credit bureaus during this time. Keep your information up-to-date. One such option is Dun & Bradstreet, which allows you to update your basic business information. If you have a complete profile, you look better on your report and ultimately, your score.
Make Payments on Time or Early
Credit bureaus all use different methods of calculating business scores. Despite all of these different formulas, you need to ensure that your payments are made on time, or early if you can. In addition, you should also make sure you don’t max out your lines of credit if you can help it.
Maintain Your Public Records
Keeping your business profiles accurate, and paying your creditors are both excellent options. From here, you should make sure the public records for your business are clean. Do your best to keep things like collections, judgements, and liens off of your credit report for your business. These things can take up to 10 years to be removed, which is why they are not a good idea for a high credit score.
While his background is mostly related to trading stocks, he recently gained interest in real estate crowdfunding with Fundrise.