HELP! Using credit to finance a business + when to apply + Bankruptcy

[Anonymous]

I'm 22, my Experian score provided through AMEX is a 734.

I don't have any personal assets, therefore SBA loan's are very unlikely.  I have $12k cash and am about $15k short for my business that I will be starting in two months.

I have enough available credit to cover, but would like to stay under 40%.  Therefore I would like to apply for more cards, I have a few questions on that:

1.) When's the best time to apply? My last hard credit pulls were on 2/23/2010.

2.) I've heard it's best to apply for multiple cards at once, is this true? Because if all pulled on the same day creditors can't don't know and plus if you're going to take a few points drop, it's no difference if you open 1-10, correct?

3.) Also, I planned on requesting credit line increases across all my CC's before applying, good idea?

Lastly, I want to talk about bankruptcy. Financing a business with personal credit is tough, there's a big risk with that, but I don't have any other options. If the business does go south and I am unable to make payments on CC's, what are the negative consequences other than no credit for 10 years? 

[RobertEG]

Wow!

I think your whole plan is risky, but will confine myself to the credit reporting implications.

FICO does not care about the $12K you have stashed away.  That is invisible to credit scoring.

So, your plan is to increase your CL by requesting credit line increases on existing cards, while also applying for new CCs to give you the available credit you need to then acquire $15K in cash?

First, requesting credit line increases on existing accounts. I have no idea what your current CL's are on your existing cards, or even what your current % utils are on those cards.  CCCs are not in the mindset now to increase CLs   Most are decreasing CLs. When you apply for a CLI, they will definately pull your CR, and will probably score it as a hard pull.  With your age, and your score, I speculate that you have a very short existing AAoA, but a good payment history.  With short account history, they may balk at a CLI.

Second, in applying for new CCs, again, each will do a hard pull, and post it to your CR.  If you app for many on the same day, that has nothing to do with when the will post their inquiry to your CR.  Some way not even look at your app for a few days, others may run it through their own risk analysis before doing a credit pull.  You have not idea when any inquiry will ultimately be posted to your CR.

Yeah, the first few decisions on new CCs or CLIs may escape scrutiny of multiple, recent inquiries, but that will fade fast.

Once a pattern is seen of many recent inquires for new credit appear on your CR, the others  will put much more scutiny on your requests.

A risky approach.

If you have no personal assets, and are attempting to finance your dream through revolving credit, you may be popping the gun a bit too soon.

You are going to end up, no matter how you stage your inquiries, with multiple new inquiries in your CR.

Then, if you get all that you applied for, you intend to immediately use that revolving credit at a high percenatage of your revolving CL.

I doubt that the new cards will be at any reasonable APR.

My suggestion is to first build a sound relationship with a lower APR lendor, such as your local CU, and finance all of this without having to rely on multiple credit inquires, and high APR credit cards.

But your choice.

[Anonymous]

Well said.  To answer/respond to a couple of your questions/points, I have a low credit utilization %, mostly carrying balances on my 0% interest.  But I do keep small balances (5-20%) on unused cards as I hear that's best for credit scoring, and relationship with CCCs.

On CLI, I usually ask for them every 6 months, without a hard pull, and am usually granted the increase.  In addition with a credit check, hopefully I can have increases across many cards.  You're right on decreasing CL's, per se, anyway.  I was accepted for Citi Forward card 6 months ago and they gave me a $4000 CL, but in doing so, reduced my Citi Platinum to a mere $500!  I was outraged! Perhaps, that's just Citi though.  Which means I should def broaden my horizons and apply with CCC's that I don't have credit with such as Capitol One and Discover, I'm guessing they're more likely to grant credit to new customers.    

On applying for many the same day, the point was really to make use of the 'points drop' with a hard pull, I've heard it's the same whether it's one hard pull or ten. And also, if I were to spread them out, they might not notice that I'm requesting new credit so actively.  A CCC might act differently if they see a person applied for 5 CC's two weeks ago, but if I apply for a bunch all on the same day they might not notice. 

On risk, tbh, there's plenty of other kids my age with more debt than me.  I think there's little chance of filing bankruptcy and continuing to make payments shouldn't be difficult as I don't pay for many bills other than CC.  I've shown responsibility thus far and am showing more by seeking information on this forum as well as looking to keep my utilization %'s under 40% per card.  You're right about the high APR though, I have a lot of cards that have rewards, thus come with higher APR's.  I will look into lower APR alternatives and perhaps more intro 0% as the debt should only be short term.

I do also need to create more cash, thus I will use "convenience checks" with their combined APR offers.  I know there must be a lot of negative connotations with "convenience checks" but with time value of money combined with an aggressive startup investment it could be a profitable endeavor.   

Lastly, to repeat, is there a best time to apply?  Should I wait a certain amount of time after my last hard pull?

[llecs]

OP, have you considered financing via an org. like Lending Club or Prosper? I just got a loan via LC and there were people on there asking for startup loans for their businesses. They do pull a TU FICO exactly as found on here and it is a 660 minimum.

If you need the credit, anytime it the right time to apply. Ideally, if points are a concern, then wait a year between pulls.

IMO, don't apply for multiple CCs at once. Lenders will still see the inquiries when the pull is made, so you can't hide the fact you're apping. Don't worry about the inquiry damage as that's overrated. But do worry about the score loss due to the new TLs being added. I added 3 new last summer and lost 50-70 points between my TU and EQ FICO scores when my new Amex, Discover, and LOC reported. My AAoA dropped, I was rebucketed due to the new credit, and the new credit hurt too.

IMO, be careful about asking for CLIs. Some will ding you with a new inquiry for that CLI. Yet others, like BofA, tend to close accounts if they see something they don't like when asking for the CLI. Increasing your CLs will never help your FICO score. However, if you carry balances that are too high in relation to that CL, then you can see a gain as your util drops due to that CLI. The best practice is to reduce your balances. If you need a CLI due to financing, then be very judicial on asking for a CLI. The great folks in Credit Cards know better as to who pulls what when asking for a CLI.

If you did file for BK, it would hurt your personal credit if you included the personal cards you used in that BK. If worried about risk, then I'd save up and pay cash for the startup or start slow. I just started a business officially on Independence Day and chances for failure are sky high, but I had an initial investment of $10k for legal and marketing and I had saved up knowing that I'd end up going for broke on this one.

[Anonymous]

I would recommended the Lending club although there is added 1.5% the loan application fee for business loans and with the Bankruptcy you the lowest rate but it could better than other options and you get a idea what kind rates you could get before you apply by buying your TU score and then compare your score to the "how is your credit/" section of check your rate (soft inquiry) to get idea of your loan graded in the rates section that's what i did and I got rate guessed I would get.

[Anonymous]

On Lending Club, I'm checking it out right now, but I don't think it's an option for me.  I just graduated from college and entrepreneurship is my dream, I've raised all capital myself thus far and consider myself self-employed but I don't any verifiable income right now.   Thus applying for more personal credit sounds like a better idea on paper.

On applying for multiple CC's at once, I know I'm going to suffer a points drop, even a 50 point drop wouldn't bother me.  I am only 22, I already have a newer car and won't be seeking a car loan anytime soon, and I probably won't be in the market for a house within the next 5 years or so.   I just want to keep my score as high as possible until then, and am seeking more credit to keep my balances under 40%.

[Anonymous]

Then I just read this, and another OP complaining of the same thing from a different site:

http://ficoforums.myfico.com/t5/forums/forumtopicprintpage/board-id/creditcard/message-id/162598/pri...

That may rule out convenience checks. 

Can they really do that - and how common is it?

[RobertEG]

Any offer I have ever eeen for convenience checks requries, before they become usable, that you must first call the 800-number listed in the offer in order to activate them.

That is apparently where their rubber hits the road.

Month one, if activiated, hits you for a 3% up front fee.  That would be 36% over a year.  Sure, month two hits you for 0% interest on the BT amount, and becomes better and better as you progress through you year of 0% APR, but they are relying on one simple late payment, or the fact that the BT wont be paid in on year, to jack up your intresest rates.

Most creditors enter into BTs with the firm conviction that it will all be paid before the low interest period expires.  So exect to benefit. Some will.  Most wont.

But one thing that you can be very assured of is that most creditors, on a statistical level, will incur more tees in the long term, if they do a BT.  That is why they do BT offers.

CCCs would not be offering these remarkable incentives if they did not, overall, put more $$ om their pocket.

Using any BT or convenience check for cash in the pocket, rather than reduction of util of other debt, adds significant additional FICO risk.

But the young entrepreneurs are what made America great .  I wish you well. 

[Anonymous]

Look down at my credit scores.Product of starting a business with credit cards..lol.  I did recover and started a successful business without any credit cards.  Most entrepreneurs will tell you the same thing, when starting out, first ask family for capital, then friends (choose carefully), the SBA, the credit union, and if allllllllllll else fails, credit. 

I know the desire to be an entrepreneur is exciting, and sometimes overwhelming, but the truth is most businesses fail, especially your first one.  You don't want to kill your future chances right off the bat with only one failed attempt.  Just my two cents, I hope it wasn't to negative.

Also, a lot relies on what kind f business.  Is it a service base, retail, internet?  If you need, I have started six businesses in total, and have a lot of experience with startup plans and capital ideas.