Friday, 17 October 2014
Financial Tips Corliss Group online magazine: Put Yourself in Potential Investors' Shoes with These 4 Tips
When it comes to securing investment, the overwhelming challenge for most entrepreneurs comes from trying to determine how to make a convincing pitch. Fortunately, it does not have to be that difficult.
As an entrepreneur and MBA who was schooled in traditional investment raising, I have always been told that to find investment capital for your business, you needed a comprehensive business plan, detailing (among other things) S.W.O.T. (strengths, weaknesses, opportunities and threats), operations and marketing plans, and financial models showing projections, cash flow, return on investment, risk analysis, etc.
These days, I am working on a new startup idea with Startup.SC, a South Carolina startup business incubator that focuses on scalable technology companies. What I have learned over the past few weeks is that although there is no exact formula for successfully developing a pitch, start by asking yourself this simple question:
If you were an investor, what would you want to see in a pitch?
Quite simply, put yourself in the shoes of the investors you are pitching and focus on these things:
1. Customer acquisition, not revenue.
More than revenue projections, investors want to know how you are going to capture and retain customers. In a roundabout way, it is essentially the same thing (both deal with revenue), but while revenue projections can be formulaic and are for the most part completely pulled from the air, what speaks to investors is a clear, effective and executable plan for capturing customers and keeping them.
2. The jockey, not the horse.
Investors bet on jockeys, not horses. What investors want to see is that you are committed and able to fulfill the task of implementing your plan through challenges as well as successes, and that you are the type of person who is going to see it through to the end. Ultimately, a great idea is worthless without great execution. Prove that you are the person to carry out the vision.
3. Flexibility, not recipes.
You may have an idea of how you want to structure your company and your investments, but understand that every investor has different expectations, as do their partners and stakeholders.
4. Remember: Nobody wants to see you fail.
When negotiating with investors, entrepreneurs often get stuck in the wicked mind game of trying to determine who is making out the best. In reality, success depends mutually on two things: your passion and capabilities and your investors' money.
In the end, everyone loses if you fail, so it is in nobody’s best interest to create a situation that erodes any chance of success.
Tuesday, 14 October 2014
As I get rolling on a new startup with my partners at Startup.SC, a startup incubator in South Carolina, I am reminded of a few painful mistakes many entrepreneurs, myself included, make when starting a business.
Now, if you are starting a business, you probably have not put too much thought into how you are going to exit. There are, after all, countless considerations to make as you get started, from applying for business licenses, developing working prototypes to setting up your website. If you ever plan to sell your business or bring on investors to grow, how you run your business from the start is just as important.
Fortunately, it is not difficult to get started properly. Simply consider these four tips, often overlooked by most startup entrepreneurs.
1. Prepare your general ledger.
Setting up your accounting books may seem bland and tedious, especially for entrepreneurs without experience. Many rely on off-the-shelf accounting software, which provides general guidelines and templates to get you started. These are fine and completely acceptable for most startups, but to fully understand the financials of your company and, in the future, provide the evidence of the value you have built, you should give your set up careful consideration. Although a little pricey, it would benefit you to hire a professional when getting started.
2. Keep business business.
It is completely acceptable for entrepreneurs to pay for a variety of expenses with company funds, so long as those expenses meet the generally acceptable accounting standards (GAAP) for business expenses. Too many entrepreneurs, however, use company funds for personal use, trying to justify it with very liberal interpretations of GAAP or simply improperly reporting.
Not only could this get you in hot water with the IRS and open you up to a great deal of liability, it will be difficult in the future to separate these expenses when valuing your company. From the onset, it is best to just keep all personal expenses out of the business.
3. Report all revenues.
It is not difficult, and definitely enticing, to skim money from the business at the start, especially if you do most of your business in cash. Again, not only could this ultimately get you in trouble with the IRS, but it undervalues your business in the long run. It is going to be difficult to prove value and growth if you are not reporting real numbers from your business.
4. Keep careful records and receipts.
OK, excluding personal expenses and reporting all of your revenue just means giving more of your hard-earned money to Uncle Sam in terms of taxes. Not necessarily true. If you understand the extent of what you can expense and, more importantly, you keep copious records of your activity (both for audits and due diligence of potential buyers and investors), you can ultimately work down your taxable income without hurting the value of your company.
Grab yourself a good book or, better yet, find yourself a trusted professional advisor to learn how to best run your business this way.
I was part of a business team that looked at investing in businesses a number of years ago. It was not uncommon to meet an entrepreneur of a small business whose only proof of success and value was a shoebox full of cash. A few would emphasize that the company was paying for personal utilities, auto expenses and even groceries and that we should consider these expenses as part of the value.
The problem was that they often could not prove these claims satisfactorily because they had not accounted for them properly. In the end, it hurt the valuation of their company and gave us tremendous leverage during the negotiations.
Most entrepreneurs are not thinking about an exit when they are in the startup stages of a business. If you ever have a goal to divest or grow through investment, how you run your business before you start is just as important as after.
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Sunday, 12 October 2014
Is there anything that big government does well? I mean sure, our military is really pretty practiced at breaking things and shooting people; which (I guess) explains why they are being sent to fight Ebola. (If that logic escapes you, don’t worry… I think a lot of us feel that way.) And yeah, the IRS is pretty good at separating me from my hard-earned money; but, then again, so is Banana Republic. At least Banana Republic has the good taste to compete for my cash.
This basic question (“What does big government do well”) seems to confound liberals. We on the right have been asking it for decades… And we still haven’t been able to solicit a single honest answer from defenders of of the state. In fact, satire, sarcasm, and a little incredulity, is the general response from our esteemed colleagues on the other side of the ideological divide. I did, however, receive a list of “ten things government does well” from someone over the weekend. Of course, I couldn’t help but share it (and a few observations of my own) with the rest of the world:
Things that Government does well
(According to someone who I assume is a card-carrying member of Obama & Company):
1. Protecting our freedom
So that little dust-up in the 1770s was because government was just protecting our freedoms too vigorously?
2. Giving away land to common people
Um… What property are we talking about here? Because as far as I know, the government isn’t actually a “producer” of land – which tells me that the land it gives away to “common people” was first confiscated from someone else… Sure, government has turned “redistribution” into an art form, but I don’t think the forcible confiscation and redistribution of land coexists real well with “number one” on this list.
3. Educating everyone
The national graduation rate is a mere 75 percent; and only half of U.S. adults can name all three branches of government… Watch a few “fan interviews” of the Jersey Shore, and then keep a straight face while telling me that government has done a great job educating our youth.
4. Helping us retiring with dignity
Because nothing is more dignified than depending on a paternalistic government Ponzi-scheme for financial security in your golden years, right?
5. Improving public health
Ebola. (And on the off-chance that you’re still not skeptical, here’s another one-word answer: Healthcare.gov.)
6. Building our transportation network
Federal data shows there are roughly 63,000 “structurally deficient” bridges in the US. Of course, this doesn’t even skim the surface of roadways that are deteriorating on a daily basis. Heck, on my way to the convenience store, I routinely have to dodge a pothole that has the capability of swallowing my Jeep Rubicon. And all of this deterioration is despite the massive amount of time and energy our state, local, and federal governments have dedicated to “stimulating” the economy with a little rush-hour timed construction work. (I actually have a running theory that my home state has no storage unit for traffic cones… After all, that’s the only logical reason for blocking off a four mile stretch of a major interstate so crews can repaint 25 foot of the HOV merging lane.)
7. Investing in communications
Sure, the government owns the radio frequencies… Too bad they haven’t been able to develop a dependable way to alert President Obama to impending scandals before the media breaks a story.
8. Building our energy supply
Because nothing says “efficient use of taxpayer funds” quite like a bankrupt green-energy company in California.
9. Inventing the future (NASA)
Wait… “Inventing” or “investing”? Because last time I checked, “Muslim outreach” wouldn’t necessarily fall under either one of those categories. (Well… Unless our defense against ISIS is far worse than even conservatives fear.)
10. Defeating totalitarianism
Right. So government is super effective at killing the effects of overbearing government. This makes total sense.
Thursday, 9 October 2014
Social media and financial advice aren’t such an easy match after all.
Sure, the initial attraction is obvious. With one stroke, advisers can woo clients with regular investment tips on Facebook and Twitter, building an audience and drumming up business. Then, after establishing a rapport with their followers, they can follow up with one-on-one video conferencing to clients on Skype or FaceTime without leaving their screens.
But back up a minute.
Old-fashioned, face-to-face communication is still key, advisers say, even for those who use social media extensively. In-person meetings are a must to glean nuances about risk tolerance and financial needs that clients may not even realize about themselves, let alone be able to communicate. Worse, pat advice on Facebook and Twitter can run the risk of looking like a hot tip and other worthless advice littering some investment websites.
So, how best to proceed on social media? Here are some things to consider:
1. Set the right tone
Being on social media is about “being where the people are. It’s about being engaged, sincere, genuine and contributing something of value. And over time, you build relationships,” said Will Britton, a financial adviser in Kingston.
For him, social media is a place to begin a conversation. For instance, he hopes to open dialogues with his regular roundup of stories from financial media, acting as a mini news service for people following him on Twitter. By linking to these stories and affixing his Twitter tag, he’s effectively handing out electronic business cards to the world.
“My presence [on social media] is enough for people to know what I do professionally. There’s certainly some professional content, whether it’s sharing links to worthwhile articles or videos or stuff that I come across.”
It’s a faux pas, though, to look like someone selling something, he said.
“I try to stay away from overt marketing, A) because we get into compliance issues from an industry point of view, and B) I just don’t think that that’s what the people on those platforms want anyway. They’re looking for connections and conversations and engagement. They’re not looking for spam and ads and ‘Come buy this from me,’” he said.
2. Differentiate between public and private
Investment professionals need to draw a clear line between public and private, a line that’s not always clear in social media, nor in real life.
Take this easy scenario: a conversation at a children’s hockey game. In the stands, parents inevitably get to talking. Often the topic will turn to money and, sooner or later, an investment pro such as Mr. Britton will have to mention that he’s a financial adviser.
That’s when another parent may get serious and ask a direct question about the family’s finances. That’s when the informal conversation needs to stop and continue in private. It’s best to think of social media as a giant referral service for investment advisers, he said.
“I think a lot of the time, people definitely aren’t going to the Yellow Pages [to find advisers], and I don’t even know if they’re going to Google any more,” he said. “They are crowdsourcing that information. They’re going to their community, wherever it is, whether it’s online or off, and saying, ‘Hey, does anyone know a good financial planner?’”
3. Social media still isn’t seen as a replacement for traditional financial news sources
There’s skepticism surrounding social media as an information source in the investment community.
Institutional investors remain particularly wary, according to a global poll by communications network AMO conducted in January this year. Their survey of 105 institutional investors in 12 countries found that 85 per cent feel that social media sites are generally not reliable for financial news.
Yet, at the same time, they also indicate a future for it, with 82 per cent saying that social media is growing in importance in financial communications. Thirty-nine per cent of these are prone to looking at investment forums for work regularly or occasionally, and 28 per cent consult them under exceptional circumstances. LinkedIn was the most popular of the social media sites, with 59 per cent consulting it at some point, although a large 41-per-cent segment reported never using it professionally. About 46 per cent reported ever consulting Twitter professionally.
Similarly for retail investors, an online survey in August of 2013 for BMO InvestorLine found that social media platforms, such as LinkedIn and Facebook, were still slow to be seen as reliable investment-news vehicles. Only a third of the 1,020 Canadian investors surveyed said they use social media for investment insights.
In comparison, 69 per cent of those investors surveyed said they found TV current events and business news trustworthy, and 55 per cent said the same for newspapers and magazines. So linking to more traditional news sources may still be a good habit for advisers online, rather than linking to blogs, forums or other social media.
All of this suggests that social media continues to make inroads, but it still has a way to go.
4. Organize online advising more effectively
Victor Godinho, a financial planner in Toronto and still in his early twenties, sees social media as perfectly suited to the 20- to 40-year-old crowd he caters to. Every Friday, he posts a financial tip on his social media sites, from Instagram and Facebook to Twitter and Pinterest. He has a client in Ottawa with whom he conferences on Skype.
Yet he adds that Skype and social media require a more effective use of time, rather than just chatting for an hour in his office. “You need to keep their attention [online], or you need to make sure they’re on the same page as you, considering you’re in two different locations.”
It’s a supplement to in-person meetings. “Every year when we do our annual review, we’ll meet in person,” he said, and “when you’re in-person, you’re inclined to talk more than just business.”
But for a video conference, advisers need to send clients documents ahead of time. Time onscreen needs to be managed more efficiently, and the meeting needs to move along at a faster speed. More pre-planning is required to make the meeting more effective. It requires a different communication skill, with a focus on not wasting time.
“If you can make that easier on your client, that’s the best thing you can do,” Mr. Godinho said.
About Corliss Online Financial Mag
Corliss Group Online Financial Mag is a stock-market education website designed to teach beginners how to trade shares. Corliss Group Online Financial Mag does this in a manner easy to understand and uses only relevant and essential information required to trade shares on the stock market.
Corliss Group Online Financial Mag was formed because of the lack of stock-market-related websites that impart the steps required to begin trading safely; thus, our step-by-step guide to buying shares.
Friday, 22 August 2014
What can an individual who lives on a small salary do to invest and augment his income somehow? Here are some tips to follow:
1. Invest in something close to your heart
Whether it is in music or cooking, investing in a small venture will have a greater chance of surviving and even achieving reasonable success if it involves doing something close to your heart or within your experience as a person or as a worker. If you work as a waiter, why not learn as much as you can about some way of improving a recipe or a drink and come up with your own sideline you, or with a partner, can run during weekends or after work?
We hear this advice often and yet not many take it to heart or are brave enough to actually do it. Many feel it takes too much effort and money to start a business. This is not true, in general. Making a single unique jacket or fashion accessory and selling it can be the one step you need to encourage yourself to make more. Even a used item such as a broken sofa, if repaired and furbished to look attractive might bring you some income you never thought you could have from what you already have.
Oftentimes, all it takes is a lot of imagination and a dose of courage to jump right ahead on a new venture you never tried before.
2. Learn the basic math
Any business, small or big, will depend largely on good and proper basic accounting. Learning the fundamental methods of bookkeeping will go a long way to controlling the flow of resources and understanding the nature of your business finance. We all knew about the Chinese who, for many centuries, used the abacus to make sure they got the entire math figured out. With the calculator or the PC today, the job has become even easier and more efficient as we can keep records as well of our transactions.
Still, there are other tricks we can avail of to make the task easy and more enjoyable. Finger-Math can be a tool one can learn and use during those hectic moments when technology Is not around to your aid. Mental math is a trick we can also develop to enhance our acuity in this area. Whatever suits your personality and style, make sure the math is a primary focus in your business. Remember, math is but a tool to make your work easier; but loving the work can make a lot of difference in how you conduct the business.
3. Know you product
Knowing your product is as important as how much you price it eventually. You may have a good round figure for your product’s price; but if you have not truly known your product (what it directly provides, what value it adds to its user, how it can be enhanced beyond its basic use), you will not fathom its true worth for you and for your customer.
Knowing your product goes beyond appreciating its innate value. Peanut butter is not just for making bread taste better or eating by itself. It can also be used for adding flavour to other recipes or with other food (try it with banana). And unless you tell people it can be used as so, they will never discover its other uses. Advertising or showing it in your packaging can be the step you need to do to enhance your product’s value and appeal as well as its price.
4. Know your customers
Not all people will want to buy your product or service. How to change their mind is the challenge you must never give up on. Changing your approach may allow you to capture certain customers you know patronize other brands. Price reduction, although it is not always the best thing to do or other come-ons, such as giveaways or freebies, may help promote your product in certain market locations you wish to capture.
Talking to people and being sensitive to their needs will help you get a clearer picture of your prospective customers.
5. Know your competitors
Knowing your customers will teach you how to appreciate and know your competitors indirectly as well. If you feel your product is better than your competitors and yet you cannot break into the bigger share of the market , then there must be something wrong with your product or your marketing approach.
Companies who have been in the business for many years have a lot to teach you how to go about your own venture. Get as much information from them directly through visiting their stores and factories or indirectly through reading books, magazines and websites.
6. No matter how many competitors you have, you can still join in if you are unique
Unless every corner in your area has a small variety store, you can still put up your own as long as you provide a unique feature in your business. Delivering your product while others wait for buyers can be your advantage in these busy times. Or, you can have orders picked up at certain times to encourage people to buy fresh vegetables, fruits or meat, for instance. The trick is to make your customers feel special and given a personal touch. Adding something nobody else provides may be the advantage you need to keep the competitors behind.
7. Find out what works for you and your product
Eventually, you will have to experiment and make a lot of mistakes as to how you can improve your product, your price and your style of operation. But things will change as economic and social realities also change ad adapting creatively will allow you to stay afloat. Being prepared for such eventualities ahead of others will help you reduce risks and manage your business well.
In the end, running a business may take more and more of your time and may lead you to give up your day-job. If you feel the time is right, then go ahead. Most business-people started that way. Make up your mind at the very start that the option is always present. It is just a matter of time when you will take the brave jump.
Saturday, 19 July 2014
Graduation is the theme all around my neighborhood. It is a time of excitement and big dreams. Unfortunately in most cases, personal financial sense is not a taught at college.
Once out of college, going from living broke to a big paycheck every month can easily encourage lifestyle inflation and a downward spiral of bad financial habits. Hence, it is essential to establish a good personal finance foundation to avoid getting trapped in a lifetime of debt. Here is a checklist I would hand over to a new graduate to make sure they start on the right path.
Learn to network efficiently: Invest time in networking. Learn about your colleagues. Find a mentor and build relationships at every level, both above and below yours.
Start a case study file: By "case study file," I mean make a list of all your accomplishments rather than a list of projects you worked on. For example: Cut 20 percent of production costs while maintaining the same product quality. Include information on which project and what you did to achieve that. This will be of great use in many situations like an annual review, a salary negotiation or a new job search. In addition, keep your resume updated at all times.
Promote your personal brand: As a job candidate, 86 percent of potential employers will look at your social profiles, so spend some time cleaning up all your social media profiles.
Create a budget: You might feel like you are flush with cash going from a student's pay to a full-time-job's pay. Create a budget even before you get your first paycheck. Continue as much as possible to live like a student and set money aside for your future goals.
Pay yourself first: The first bill you should pay each month should be to you. Before you pay for your groceries, before you pay your mortgage, before you do anything else, put money aside in your savings. Most people will wait to pay all the bills and save the money left over. It is fine in theory, but the problem is there is almost never anything left over. If you pay yourself first, even if it seems impossible initially, you will learn to live with what is left over. This way you will always spend less than you earn.
Borrow a book or two on finances: Knowledge is power. Arm yourself with as much personal finance knowledge as possible. I recommend "I Will Teach You to be Rich" by Ramit Sethi, if you are just starting out.
Start an emergency fund: Establish a rainy day fund as soon as possible. Start with $1,000 to cover small emergencies, then move on to saving 'X' number of months' expenses to make sure a sudden job loss or illness won't put you in debt.
Think five and ten years ahead: Right now your 20-year-old self might say that you are never going to get married or you will always be renting. But in five or ten years, it is very likely you would have changed your mind completely. Do yourself a favor and start saving for standard goals anyway -- a wedding, down payment for a house, or your dream vacation. If you don't end up spending money on a wedding, you can always reallocate it to another goal.
Get started today: Time is the most powerful ally when it comes to investing. Many people keep waiting to learn everything about investing to start. Don't get stuck on debate minutiae. Get started with some basic, low expense, index funds -- total stock market or life-cycle funds. As you learn more about investing, you can adjust them accordingly.
Don't pass up free money: If your company offers a 401(k) plan, especially with matching funds, take full advantage of it. Sign up to contribute the maximum. That way you will never see the money in your wallet, you won't miss the money, and you won't be tempted to spend it.
Manage your debt: If you have student loans or credit card debt, pay them off aggressively, starting with the highest interest rate loan.
Avoid consumer debt: I do not believe credit cards are evil, but they are not for everyone. Understand the pros and cons of credit cards. Do not buy things you cannot afford. If you want something, save for it.
Build your credit: Unless you are determined to pay everything in cash, you need decent credit to get a good interest rate on your loan, whether a car loan or a mortgage. Even if you are in the cash camp, it is still a good idea to maintain a great credit score as it is now used by utility and insurance companies to give you preferred rates.
Insure adequately: When you are in your 20s, you might feel invincible and be tempted to skip health insurance to save money. Don't! Accidents happen, and so do sudden illnesses. If your company offers health insurance, that is most likely the cheapest option. If you are under 26, you can also check the cost of insurance as a dependent on your parents' plan. If you are single with no dependents, you probably don't need life insurance, unless you have a loan that someone else co-signed for, if that is the case, insure yourself at least to cover that loan amount.
Nobody cares more about your money than you do. By setting up a good financial foundation, you are setting yourself up for success.
Wednesday, 16 July 2014
Saving Money: Tips everyone in their 20s should know by Financial Tips Corliss Group Online Magazine
Financial advisers stress that there are several money lessons everyone in their 20s should know. For example, start saving at least 10 percent of your monthly income.
Changing your financial state requires a kind of time travel to commune with your future self. Where do you want to be in 10, 20 years? Are you on the right path, or heading in the wrong direction?
The time value of money—that is, how savings, investments and debt levels compound with the passing of years—means that money habits, good or bad, created when we start to earn cash echo into the decades that follow. And a whispered bit of wisdom up front can keep you from howling over your mistakes later in life.
We polled our NerdWallet network of Ask an Advisor certified financial planners about the greatest regrets and lessons you should learn in your 20s, 30s and 40s. Taken together, these could be considered 12 steps toward securing your financial future. And they all hinge on two keys skills we must learn—and often relearn—in our money lives: prepare and stick to a budget, and establish good savings habits.
We’ll address the 30s and 40s later this week, but first: your 20s.
“Understand that the world has changed. You will be more responsible for your financial future in regard to earning a living, retirement planning, funding and investing, health insurance coverage and costs and less coverage through government programs,” says Jerome Deutsch, managing director of U.S. Institutional Markets for Index Strategy Advisors in Decatur, Georgia.
“Learn, plan and live mindfully and with a long-term perspective. It may not sound like fun, but you have a long life ahead of you.”
Pay yourself first
Save at least 10 percent of your monthly income. “The earlier you start this, the easier it becomes,” says Michael Keeler, president of GFS & Association in Las Vegas. “If you can learn to live without 10 percent of your income, you’ll do great in retirement.”
Use the savings to set aside the equivalent of six months’ gross income. “This money shouldn’t be subject to market whims and shouldn’t have the goal of making a lot of interest,” says Larry R. Frank Sr. of Better Financial Education. “The objective is to develop the war chest for unexpected expenses and to develop the habit of keeping your standard of living within your means”—to spend less than you earn.
After you’ve built your emergency fund, focus on paying down debts or begin to invest.
“Student loan debt comes next,” says Sara I. Seasholtz, president of Preferred Financial Strategies in Mooresville, North Carolina. “Then they should participate in the 401(k) where they work and contribute whatever is necessary to get the match from their employer. This figure seems to be 6 percent in most cases.”
Don’t go crazy with credit
Live within your means and resist the new spending power that comes with having income and a few credit cards. Otherwise you will spend your 30s paying for your 20s—and your future self will hate you for it.
“My number one piece of advice for those in their 20s is—beware of debt and credit! So many of us have made the mistake of bankrolling our 20s with credit cards, and spent our 30s digging ourselves out,” says Carrie Houchins-Witt, owner of Carrie Houchins-Witt Tax and Financial Services.
“As tempting as going out and buying that new car may be, I would advise against it. Now is the time to start building up emergency funds and a strong foundation to invest in assets that appreciate,” says Jeremy S. Office, principal of Maclendon Wealth Management in Delray Beach, Florida. “The pleasure of not having debt or paying it down will last much longer than that new car or luxury item.”
Marriage? Think again
The heart rules, but if the head were in charge you wouldn’t think of marrying in your 20s. Why? Roughly half of all Americans get divorced in their lifetime, true, but those who marry before the age of 30 are especially likely to.
In 2012, 80.6 percent of all American women who had a divorce and 72.8 percent of all men were below the age of 30 when they married. “I started family before settling in on long-term career plans [and that] made it difficult to transition back to career later after 10 years and divorce,” says Jean Schwarz, managing director of Lumina Financial Consultants in Vienna, Virginia.
“Experience shows [that] all of us change so much between 20 and 30. Looking back, we wouldn’t recognize or want to be ourselves at 23-to-25 when we are 30,” adds Seasholtz. “To be a good mate and partner one needs to know themselves well. They need to be established and have some successes in life.”
Maybe settle for a long engagement.
Know and build your FICO score
Your FICO score is a measure of your creditworthiness, and is based on your payment history, credit utilization and length of credit history, with scores ranging from 300 to 850.
Tracy Becker, president of North Shore Advisory Inc., a national credit repair company, cites an example when suggesting how to building a strong credit rating in your 20s: First, have your parents add you as an authorized user to one of their credit cards. Then open a secured credit card, which usually requires a cash deposit roughly equivalent to your credit line. Six months later, the woman in the example had a FICO score of 660.
“The reason her score was this high without much credit is due to her Mom’s old Visa card being reported. The Visa card aged her average age of credit substantially, giving her extra points,” Becker says.
This opens the door for future credit lines and securing bank loans when you want to buy a house. Key, of course, is keeping your balance low and paying on time.
Ultimately, you are young and you have time to make mistakes and recover. But you’ll be far better off if you get off to a good start now.
“I never considered the impact that waiting to build savings and investments would have on my long-term financial security,” Schwarz says. “I didn’t think about time value of money until my mid-30s.”