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Personal Credit & Credit-Worthy Officers

Your personal credit plays a vital role when establishing corporate credit — especially in the early stages. Understand how it works and how to protect yourself.

FICO Score Breakdown (300-850)

35%Payment HistoryFrequency & amount of past payments
30%Amount You OweCredit used vs. limit
15%Length of CreditThe longer, the better
10%Types of CreditMix of mortgages, cards, etc.
10%New CreditRecent inquiries & accounts

Credit Utilization Guide

0-30% of limit: Green Light
30-60% of limit: Yellow Light
60-90% of limit: Red Light

Three cards in the green range beat one card in the red range. Don't max out cards!

Hard vs. Soft Credit Pulls

Hard-Hit Pull

When a mortgage broker, car dealer, or lender pulls your credit. This LOWERS your score every time. Avoid unnecessary applications.

Soft-Hit Pull

When you pull your own credit. You can do this as much as you want — no impact on your score.

Credit-Worthy Officers (CFOs)

Creditors check the personal credit of any officer owning 10-25%+ of the business. Banks usually look for FICO 680+. If your officers don't have 680+, you can find a Credit-Worthy Officer.

The CFO Strategy

File a resolution: "We the board vote and elect that everyone named in the financing committee can state he/she controls up to 100% of stock (up to means 1-100%). They do not own the stock for a personal nature; they own the stock for credit purposes only."

Issue stock certificates to the CFO with an expiration date (60-90 days). You can have as many CFOs as you want — they just need to be elected to the financing committee.

Even if your FICO is 850, let someone else personally guarantee. You get the best of both worlds — the bank gets their guarantor, and you don't have to be that guarantor.

The Bank Loan Round-Robin (Personal Credit)

A technique for building excellent personal credit using the bank's money:

  1. Go to Bank A, open a savings account with $1,000+
  2. Wait 3 days, then ask for a $1,000 loan using the savings as collateral (no credit check needed)
  3. Take the $1,000 to Bank B, open savings, get a $1,000 loan
  4. Repeat at Bank C, then Bank D
  5. Open a checking account at a 5th bank
  6. Make first 3 monthly payments on all 4 loans from the checking account

After 3 payments, you've unfrozen equal cash in savings. Within 30 days you have: 4 active bank loans, 3 savings accounts, a checking account, and excellent credit ratings — all ahead on payments.

To Personally Guarantee or Not?

In the beginning stages of establishing corporate credit, you'll be asked 95% of the time to provide a personal guarantee. Once you have a Duns Rating and Paydex of 80+ and 5+ years in business, you should no longer need to.

Alternatives to Personal Guarantee

  1. Offer alternative collateral (business assets) instead of PG
  2. Accept a smaller credit line to start ($25K instead of $50K)
  3. Negotiate: ask if the PG can be dropped after 6 months of on-time payments
  4. Find a creditor that wants your business — show cash up front

If you have an existing relationship with a creditor and the corporation can't pay on time, never give a personal guarantee at that point, no matter how much they insist.

Collection Strategy

If a debt has been in collections for 5+ years (near the 7-year mark), don't just pay it off — you'll have "paid collections" on your record for another 7 years. Instead, call the collections company and tell them you'll pay in full if they write a letter to all 3 credit repositories to expunge the collection. Get their word in writing first.

Reflect

How is your personal credit score? What one action will improve it most?