If you’re leaving your full-time job to explore self-employment opportunities, make sure you have access to a healthy credit line; also, take advantage of your current source of income to secure funds for your new business endeavor
Dear Your Business Credit,
I’ll be leaving my job soon to pursue personal opportunities, aka self-employed. But before I do, I want to make sure I take advantage and help myself with the perks I have while having full-time employment.
Basically, I want to raise my credit limits and possibly apply for a new credit card with a high cash limit, as I like to invest in real estate and other things.
Can you tell me some tips for how to go about this for #1, getting the highest cash limits, and #2, not hurting my credit.
Thanks! – Matt
It’s great that you’re coming up with a strategy ahead of time. There aren’t any overnight shortcuts to raising your credit limit, but there are some things you can do that will speed the process.
See related: The ultimate guide to protecting credit in a freelance and gig economy
Applying for credit before leaving full-time job
It’s always easier to borrow money when it looks like you don’t need it. If you have any credit cards right now, try to keep your spending on them to a minimum, so you don’t show high credit utilization to potential lenders.
They will not be likely to extend your credit limit if you are already maxed out. Credit card issuers don’t just look at individual cards. They look at your cards in aggregate, too, so make sure the total picture across all of your cards shows light credit utilization.
The other steps you can take is to pay your credit card bills on time, and, if you can, pay off the balances in full. Your credit profile is, essentially, a measure of how well and whether you keep your promise to pay back money you owe. Make sure it’s glaringly obvious from your behavior that you do.
If you’ve been paying your credit card bills consistently and paying more than the minimum balance, call the credit card issuer and ask for a credit line increase. Sometimes, all you need to do is request one. (Bear in mind that this may show up as a hard pull on your credit report. That can affect your credit score.)
Alternative ways to fund a new business
While many entrepreneurs have used credit cards to finance new business ventures, I’d encourage you to look for other ways to do it, such as saving money from your current job or raising capital from friends and family.
If for some reason your real estate investments do not pay off and you close the business, you will still owe the money you have borrowed. That’s because generally, small business credit cards require a personal guarantee.
No one wants to get stuck living in the past by having to pay off thousands of dollars in credit card bills for a business that no longer exists.
I’d also encourage you to look at traditional real estate financing, such as a mortgage, which is generally cheaper than using credit cards once 0 percent interest rates wear off.
Transitioning from full-time job to self-employment
Another option is to start the real estate venture on the side and transitioning to self-employment once you’re making money from your side hustle.
You may not love your current job, but it is a steady source of cash you can put into the business. Funding the business in this way will give you some runway to experiment, without the high stakes of borrowing a lot of money.
Using cards to finance new business venture
If you do go ahead and use credit cards for financing, make sure not to max them out once your business is rolling.
Unexpected things can happen when you own real estate, and purchases like a new sump pump or furnace can be pricey.
By keeping some room on your cards to cover emergency purchases like this, you won’t have to stress out over them. Good luck!