By Michael G. Peterson
Vice President of American Credit Foundation

article[at]debtguru.com

For many people, starting their own business is a personal dream. Before fulfilling your personal dream, it's necessary to get your personal finances in order. At this early stage you'll be using your own personal finances to start your business and if you want to succeed you must approach your personal finances with a professional eye.

Avoid funding start-up expenses via credit and running up huge credit card debt. Instead you should apply for a business loan, which has the benefit of being a one-time loan with typically lower interest rates than a credit card. However, in order to get good terms on your loan, you will have to have your credit card debt in order first.

Without an established business credit history, lenders will have to look to your personal credit to negotiate your terms. You don't want personal credit problems starting your business credit off on a bad foot.

Three Steps to Starting Your New Business With a Clean Credit Score

A clean credit score will help you get the low interest rates you need to start your business on solid financial ground.

Step One. Pay off your credit card debt.

Once you know where your credit weaknesses lie, zero in on them to start improving your standing. Your goal will be to completely eliminate all credit card debt. It may seem like an insurmountable task, but in reality, paying it off as fast as you can is actually easier and less expensive than paying it off over a period of many years.

First, start paying double the monthly minimum on the balance with the highest interest rate, while paying the minimum monthly due on everything else. By paying down that highest-interest balance, you will save yourself from potentially spending thousands extra in interest - and you'll be done in half the time. Once you have paid off that balance, move on to the one with the next highest interest, and so on down the line. Eventually you will enjoy the freedom of zero credit card debt. In fact, if you find yourself having a hard time staying away from credit card purchases - take them out of your wallet and bury them in your closet until you have improved your financial situation.

Step Two. Check your credit report.

Have you seen your credit report? You can get a copy of yours by visiting http://www.freecreditreport.com. Look over it carefully to make sure there are no mistakes that could have negative effects on your credit and your interest rate.

If you find any mistakes, you may dispute them through the credit-reporting agency. The creditor then has 30 days in which to respond to your dispute. If they fail to respond within 30 days, the disputed information is expunged. If it is a particularly old debt, creditors may not even bother to respond. Disputing credit report mistakes is definitely worth a try since you have nothing to lose but bad credit.

Step Three. Pay bills on time.

Your credit is not based solely on your ability to pay off your credit card debt. You must also demonstrate that you are responsible when paying your bills: utility bills, car payments, and rent for example. Try to pay all of these on time and in full and it will reflect well on your credit report. If you have trouble remembering to pay your bills on time, try to keep them all in a highly visible place so you will have a constant reminder to pay them.

Many utility bills may be paid online these days, so you can simply check with your utility companies to set up automatic payments. Not only do you maintain good credit by paying on time, but you also avoid paying late fees, and saving money is always a wise financial move!

Before you establish your own business, it is imperative that you begin with a clean slate: no debt, healthy credit, and responsible financial habits. When you have a good credit score to begin with, your business will have a stronger start and will be easier to run. Good finances mean success. Best of luck with your new business venture!

Michael G. Peterson is the Vice President of American Credit Foundation, an IRS 501 (c)(3) non-profit consumer credit counseling organization that has assisted thousands of individuals and families with their financial situations through seminars, education, counseling services, and, debt management plans. For more information, and free consumer resources visit http://www.debtguru.com

Published - February 2006