When people think about living like the top 1% percent, it’s not strange for the first thought to be about cash flow. Your on-hand cash is the engine for your life goals if you see yourself with a new home, car, or specialty items. The rich keep their finances together by borrowing money and putting it towards ideas that net them passive income. Using credit to your advantage becomes the divider between living paycheck-to-paycheck and thinking long term about attaining financial freedom.
Getting that first credit limit increase does not mean spinning out the dealership parking lot in your dream car, even though it sounds nice. Neither is it an invitation to swipe your credit card for a random shopping spree. Our team here at Black Wealth Renaissance want to help our members out as much as we can to weather any financial storm. Because if there’s anything you need to know on your wealth-building journey, nothing can prepare you more than researching and learning from the mistakes of others.
There’s a big chance you have a friend or a family member who made a mistake with their credit and may have told you to stay away from opening lines of credit in your supposed “best” interest. But the important thing for you is learning ways to skip pass their mistakes and build a legacy of your choosing, starting with smart credit usage.
Now it is true that you can get into real estate without good credit, but that’s not too different from lending cash to your amnesiac friend that owes you money and gets forgetful when you bring it up. The interest rates for future homeowners is higher for a person with a lower credit score than someone with a healthy credit history. It’s essential if you think your credit isn’t the best it could be beneficial to pay for credit repair services. You may have negative factors in your credit history that are inversely affecting your credit score.
Real Estate investors are able to tap into a line of credit specifically for property management. Real estate credit is an amazing way to get access to capital and faster access to cash than the option of securing a loan. The variety of credit lines in real estate can be specialized depending on your business goals and motives: Single home investment property credit lines are suited for what the name implies, portfolio investment lines give access to more funds if you own a group of properties, and commercial lines of credit grant the borrower (business owner) the ability to pay for business necessities when cash is not readily on hand.
Income creep sneaks up on those who have gotten a promotion or a job that pays more than their last role; that new money presents fresh opportunities to spend your cash when saving is is better for your wallet. An old proverb you’ve probably heard speaks on this particular situation: Just because you can, doesn’t mean you should.
Example:
Sam has been working at his job for 5 years, smart enough with his money that he doesn’t have to struggle to make ends meet. But, for the longest time he’s been hoping for a promotion so he could move out of his apartment and maybe slide around town in a luxury car. Hell didn’t freeze over but the promotion Sam had been waiting for finally came his way.
Problems didn’t arise at first because, as previously mentioned, Sam already understood the basics of saving his money. That didn’t stop the increase in soon-to-be purchases however. His new checks turned to dust for these new possessions he knew he couldn’t afford, yet he felt compelled to show others the fruits of his labor. The mortgage payments on his new home began to add up, car note payments for his new vehicle were taking up space in the mailbox, and even though his new clothes were snazzy the price tag for the wardrobe change ate up his pockets.
A lightbulb went off in Sam’s head that maybe he could use his new increased credit limit to pay off some of his mounting debts. A new problem appeared when he started using his credit to pay off debt: His on-hand cash that would be for bills was now freed up for use now that his credit cards were busy. This only meant that now he could go back to buying the things he wanted without worrying, at least for a short time until it was time to pay bills again. Sam’s irrational spending habits got the best of him, and income creep eventually forced him into a sick cycle of struggling to pay payments that he created all on his own
The lesson here is to use Imaginary Sam’s misfortune to your benefit. If new money finds its way into your bank account, don’t create new bills to offset your gains. And certainly don’t try to pay off your debt with credit. Use your funds to work for you instead of against you, and if you see a potential investment opportunity where using your credit would be in your interest make sure you have the liquid cash to cover it.
Besides real estate, it is normal for people with both a good credit history and multiple lines of credit to use their borrowed cash to start a business. To establish your LLC or corporation as a proper business you must have a business bank account, and pay for business related expenses from this account. Depending on if your business is the kind that deals in ecommerce, it’ll be smart to set up some form of vendor credit. Certain vendors are linked to business credit bureaus and can report transactions to create a positive credit history.
Certain business credit cards are linked to credit reporting agencies, which will be helpful in easing some early business finance hurdles. Having one is helpful, but opening more than 1 card stretches how far you're able to aid your business. Try not to forget Imaginary Sam’s story about overextending your resources. Clearly defining how you spend your personal finances and business money is important for credit reporting, but is also valuable for tax time. Spending money through your business allows tax possibilities to become useful to you. Owners are able to deduct numerous taxes belonging to their businesses:
Closing Thoughts
Credit is only a trap if you let it become one. In the right hands, credit utilization is one of the fundamental building blocks of wealth building. Even if you don’t see yourself as a CEO, Founder, or entrepreneur, you can set your legacy up for life with the right financial gameplan. Lucky enough for you, credit management just so happens to be a focal point of financial tools you can learn by joining the BWR Academy. Debt repayment strategies, credit building coaching, and financial planning so you can get started using credit in your favor!
Join the BWR Academy to develop skills to increase your income and build wealth. Two years ago, our four-man roster had one vision to normalize wealth within the black community through financial literacy and the practice of group economics. Become part of an online community that wants to create something generational from teamwork and dedication.
