Another question, on building credit

It would make sense to do as little dealing with the dealer as possible when it comes to financing and insurance (chances are, the dealer will make more from those transactions than from the sale of the car itself).

Find a bank or credit union to arrange your financing through and ask them what the best deal would be for your situation.

 

I can't for the life of me understand why people think that credit cards are the best way to build credit. They are the worst possible way to build credit. They are expensive and usually give very low credit limits to start with. After a few years of wasting money on high interest rates and exorbitant fees they might get real generous and increase your credit limit a hundred bucks or so. Often they want you to pay for your credit limit increases as well. Pay us $25 or $50 and we will increase your credit limit $100. I've seen that too. Secured cards are nothing more than bank debit cards. You deposit $100 in your bank and you can use your debit card until the $100 is gone and then you can deposit some more to start all over again.

With the low scores you say you have all you are going to get is crap cards anyway. Best you get your credit score cleaned up so you have no derogs and then do the 3 banks trick using at least $1,000 and you will have excellent credit in 12 weeks with 3 banks reporting.

Of course it will probably take you a couple of years or more to get your credit all cleaned up so why not do it the really fast way. Set up a new corporation, get your EIN, and a corporate bank account. Takes just 1 day to do all of that if you put a rush on it and maybe a week if you don't. Then do the 3 banks trick and you have excellent credit in just 12 to 13 weeks. Get your corporation into Dunn & Bradstreet and then you can get loans of up to a million bucks or more. Corporate credit cards with nearly sky high limits.

Use that to get yourself into a good business and manage it wisely and you can be set for life. Your corporation is a great investment because you can drive a corporate car and take most if not all the vehicle expense off your taxes. You will probably have a home office and your corporation can pay it's fair share of the rent, lights and utilities and take that off your taxes too. There are lots of such perks you can have if you set up your own corporation that you can't have as a private citizen. Your corporation can provide you with both health and life insurance as well as your vehicle insurance. Just be careful that you never give any personal guarantees for any corporate debt.

I know a man who did that and started a little tote-the-note car lot. It only took him a few years to get his own dealership. Now he has 5 different dealerships with huge buildings and lots all stocked with both new and used cars. He has a corporate card with a $1 million credit limit and uses all of it every week buying cars for his car lots. There are lots of ways to make money if you go at it right and getting the credit to do it is not difficult. Mess around with the low limit junk cards and you will always be broke and in danger of losing it all. On the other hand, if your corporation goes broke so what? Just fold the corporation and get another one and start all over again.

 

But that corporation isn't going to give you the personal credit.

And as far as secured cards go, if you can't get credit any other way, it's a place to start. You just the $100, you don't have to deposit any more, just pay the bill and you get the credit limit back, just like any other card. Except the limit is set by what you deposit.

I'm sure there are still some cards that give you more limit than what you deposit. For example, deposit $100 and get $250 credit limit. Your money is actually in the account drawing interest.

 

With excellent corporate credit there is little or no need for personal credit. I can buy anything I want and put it on a corporate card. Furthermore, the tax savings available to a corporation are so much greater than anything available on personal taxes that it far outweighs any disadvantages.

 

cap1sucks,

First off, I'm a huge fan and follow all of your posts. You're a financial god in my book, lol.

Anyway, I was inquiring on your advice about building business credit. Would an LLC be ok, or does it HAVE to be a corporation? I'm asking because as I understand, a corporation has to follow stricter rules according to the bylaws of the state it is in such as having shareholder meetings and keeping written documentation of everything. An LLC would be much easier for me to wrap my head around as a first time business owner.

Thanks for your advice

 

It all depends on how you plan to use the corporation. What do you want to do with the corporation, LLC or whatever. Where you incorporate is also highly important. Getting credit for one type is no different than for another. In some instances it might be better to to have a corporation and in others an LLC and in still others a family trust. Clearly, if you just want to do some kind of business then an LLC might be the best bet. If you plan to use it to hide assets then a corporation might be much better. While it may seem shady and underhanded, sneaky and maybe even illegal to hide assets but that can depend on from whom you might be trying to hide assets or earnings.

So you might want to just start a business and nothing more. In that case an LLC might be the best way to go. Maybe you are a senior citizen or on a pension of some kind where the amount of money you can earn is strictly limited but you are making excellent money on top of that and don't want to lose either one. In that case you might be able to stay within the guidelines by having a corporation and having all the money put into the corporation. The corporation can do a lot to ease your financial burdens but never actually pay you anything. Doing that is acceptable even to government and a good corporation attorney can set that up for you so that it is all perfectly legal.

So asking me what the best type of corporation might be best for you is something I simply can't answer without knowing far more than I know at this point in time. Even then, I'm still no expert at corporations by any means.

 

Even if you had enough room on your personal card you would not consider doing so because the interest would be far too prohibitive. Same with a corporate credit card. However, a corporation can buy real estate so your corporation could have bought your home and rented it to you. If you defaulted and got foreclosed on the corporation probably could have taken the loss as a tax loss if it had sufficient income to do that. If not, the corporation could be bankrupted and you could start another corporation and do the same thing all over again without taking a hit on your personal credit. Corporate credit can be built much more quickly than personal credit can be built. If personal credit is ruined that stays with you for a bare minimum of 7 years. A personal bankruptcy will stay with you for at least 7 years and in some cases more. Bankrupt a corporation and start a new one all in the same day. Corporate credit is much easier to build than personal credit is and the credit limits are many times higher. A corporation can borrow more than enough money to buy a home in a year or less with no personal guarantees involved. (Or at least in theory it can). In actual practice 3 years is more like it because in order to do that your lenders would probably demand that your corporation be at least 2 years old plus have a good rating with Dunn & Bradstreet and a paydex score of at least 80 or more.

In order to build those kinds of scores a corporation would need to stay away from all the cheap credit and store cards such as $300 limit Orchard or Cap1 junk cards. It would have to stay away from payday loan or finance company credit as well. All of those are pure poison to credit scores anyway. So while the idea that your corporation could not buy your home with a corporation credit card is true, it could easily obtain the financing to buy a home of your choice and rent it to you. All repairs to the home would then be tax deductible as well as all insurance policies, taxes and other maintenance expenses. The home could also be used as a corporate office and a portion of the rent and utilities could also become tax deductible. Your computer(s) can also be owned by your corporation and deductible.

There are also many more tax breaks a corporation can claim thereby saving a bundle on taxes. Your family members can also be members of the board of directors and in the event you get hit by a speeding semi or demise in any other way there would be no problems with passing your assets on to those left to mourn your death.

Neither would I but another side of that same argument is that your corporation can loan you money in times of need. Let us say that someone is on a pension of some kind or gets paid once a month. Near the end of the month a sudden personal emergency arises. One can use a corporate debit (not credit) card to meet the expense and when your check arrives you simply pay the corporation back with a small amount of interest tacked on. Maybe only 5 or 10 percent interest. That's not really mixing personal and corporate money and the corporate savings account can be built up as well. Corporations are excellent for senior citizens who are able to make extra money they would not be allowed to make without the corporation. In essence that gives them the ability to make money without endangering their retirements. Yes, in essence that amounts to hiding money from the government but there is nothing illegal about it so long as the taxes are paid on the corporate income. Some pensions won't allow owning grave sites or having life insurance or burial expense policies but the corporation can have all of that without jeopardizing the retirement benefits. Some pensions won't allow the senior to own automobiles worth more than a certain amount but the corporation could own all the new Cadillacs or Hondas it wants.

That's not all by any means. How about filing a lawsuit against yourself for a huge amount of money and getting a judgment against yourself, garnishing your own wages for the full 25% for the next 5 or 10 years? Doing that would make it impossible for a judgment creditor to garnish your wages. You can't sue yourself but your corporation can sue you thereby getting the same thing done. Your corporation can put a lien against your car, boat, airplane or anything like that without ever going to court. Let's say you own a late model car free and clear. If state law allows it judgment creditors might be able to take it to satisfy their judgment but if the car is worth maybe $4,000 on a quick sale but your corporation has a lien against it for two or 3 times that you would just love to have them grab it in the middle of the night but they won't, of course.

Judgment creditors can easily freeze your bank accounts but not your corporate accounts. Your bank can't even find your corporate account although you have both personal and corporate accounts in the same bank.

There are many more things you can do with your corporation that you can't do personally but many people have told me they are setting up a corporation to do such things but when their story is finally told they did it in the wrong state or made other horrible mistakes that will trip them up in the end. Joe Sixpack can't get away with setting up Joe Sixpack Inc. and do the things I am talking about and if Joe sets his corporation up in his own state he also went wrong. Even registering his corporation as a foreign corporation doing business in his own state is not a good idea because of the extra costs and reporting requirements involved. Doing all of these things isn't cheap. It isn't for the low income person. Getting it done correctly is going to cost at least $1,000 just for starters. Another thousand or more sitting in a savings account for at least 6 months to a year will be needed to build that excellent credit rating that will be needed to get the corporation off the ground. Keeping that savings account intact and growing after that initial year is also important.

I strongly recommend BOA as your banking institution for both personal and corporate accounts because they have a plan whereby your personal savings can be grown as you spend. The way that happens is when you spend $5.01 for instance they round that off to $6 and put the difference into your savings account. That is a great way to build your Christmas savings so you don't have to go into credit card debt to fund Christmas (for instance). You can also let that build up to maybe $25 or $50 and transfer it to Ally bank so you get better interest on the money. That was a great suggestion you made a while back. That savings can also be used to build your corporate savings.

Just as I buy and sell domain names I also form and sell corporations which are set up specifically for the above purposes. They are already aged the required two years before I sell them. They are anonymous corporations so nobody knows who owns them. The only costs to keep them alive is the yearly fee of $150 to the state. No reporting requirements whatever. They sell like hotcakes. I can't keep enough of them. They have no tax numbers so no taxes and of course no built up credit. I'm out of them right now and won't have any more for sale until next spring. I've already got advance orders with deposits for the ones that are coming up then. Its also possible to buy corporations that already have excellent credit built up with Dunn & Bradstreet and paydex scores in place but those are really expensive usually starting at $10,000 or more. Some are even running businesses with proven good income in place. Needless to say, I don't have any of those either.

 

Hi Cap1,

I am newbie here and have been reading this forum for the past 4 days and I have been following your posts closely, which I like very much. Let me thank you for the updated info on business credit, since most of the threads about this topic were outdated. I have a questions though: Can you please explain what the 3 bank trick is? I got confused in that part of your thread. I did not understand if you were simply talking about 3 corporate checking/saving accounts with $1,000 balance each? Or if you were talking about 3 separate $1,000 loans secured by CD's? I am not sure if any of the two options will report to DNB, therefore, do not understand how will they help to get excellent credit for your business. Thank you in advance for your time and for sharing your knowledge and expertise with us.

jairodlv