Everything you need to know to improve your financial health from an expert.
Its that time of the year. Tax season and financial check ups. Financial strategist, Donnell Bobo says your financial health is as important as your personal health. Your credit score can either save you money or cost you a lot of money. If you’re a business owner, how your business finances are set up is also critical. Learn why below.
They say having good credit is better than having 100k in cash explain this.
First of all, good credit can carry you a long way. Especially if you know how to play the interest rate game. Let’s look at a few examples as to why good credit is better than 100k cash. Say you want to buy a house and flip it. You have the option to use your credit or pay cash. The house cost 50k and needs 50k in repairs. You use your cash to purchase and cash to fix the property, now you’re ready to take a profit. House goes on the market and BOOM once it sells, you’re in the money. But wait it takes 4 months to find a buyer and go through the entire process. Now all your cash is tied up and you can’t do anything so you start doing things that cost you more money. Like borrowing from family and friends and even the house you just paid cash for. This happens too much. Imagine if you would’ve just used your credit.
Looking at another example: You have no credit but you have cash. You want to start you a business selling cars. Keep in mind, to sell cars; you need a bond with your state. With good credit, you bond could be $250 for the year. But with bad credit around $4000 a year and this is the fastest way to flush money down the toilet. So you get pass that stage and pay all the necessary dollars to open your door. The next step is for you to go buy cars from the auction and now you all set to go. Remember you used pretty much all the cash you have, which is not bad because you are in business for yourself. But what’s even better is if you had good credit, you could have easily save money on your bond and perhaps gotten another vehicle to sell. Also with good credit, you could have financed all your vehicles on a floor plan.
Just from these examples, you can see the power of credit. Even more, all businesses and companies for the most part, use credit. It’s a better and sometimes quicker way to scale your business. WalMart for example is one of the kings of using business credit and you see how big they are. Reversal: You could get in debt quick too by using credit and not fully understanding your rates and terms plus not having a well thought-out business plan.
Why is personal and business credit so important?
Answer: Just spin out from the first question, there is a lot that you cannot do without personal credit and/or business credit. Nowadays personal credit is needed not just for credit but for everyday life. You can’t get utility bills in your name, certain jobs, bank accounts, rental cars, hotel rooms, life insurance and car insurance. These are just a few things but you better believe there are a host of others and more to come in the future.
For many, home ownership is the foundation of the American Dream. Unfortunately, those without good credit won’t qualify to turn that dream into reality.The best mortgage interest rates and most affordable loan terms are reserved for borrowers with excellent credit scores of 720 and up. Although some FHA mortgage programs approve borrowers with credit scores as low as 580, anything under 630 — which is considered “poor” credit — will make obtaining traditional home financing very difficult, if not impossible and remember what I said earlier about the interest rates. Most home loans are amortized over 30 years so consider your credit when you’re getting locked in for this many months.
Business credit is in the world of its own. Without some sort of business credit is hard to compete with other businesses, especially if that business is a competitor and they have business credit. Keep in mind business credit needs a personal guarantor in the event that company is new and don’t have any trade references. Even if your company has been around for some years, you still need some type of business credit and/or history with other vendors. One main reason why small businesses fail is the lack of funding. So when you combine good personal credit with business credit, the results becomes phenomenal.