Establishing and Protecting Credit, Part 2

Written By: Leah Chester-Davis, Ben Cabaniss, Travis Kivett

Good credit is often essential to many aspects of our lives, from renting, to purchasing a home, to buying goods and services, to secure a loan for a business. But what can a young, beginning or small farmer do without a credit history?

In part 1 of “Establishing and Protecting Credit,” loan officer Ben Cabaniss outlined helpful guidelines for anyone needing to develop a good credit rating. In part 2, loan officer Travis Kivett, an agri-consumer loan officer in the Asheboro office of Carolina Farm Credit, digs a little deeper with credit card advice.

Credit Cards as Tools

“Credit is a tough thing especially for young people,” says Kivett. But they can be a tool, if used responsibly, to develop a track record.

Kivett underscores the advice to make all payments on time. “Late payments can really affect your credit," he says. “The hard thing about credit is that it can be hard to get back on track. A missed payment on a credit card, for example, can haunt you for a long time.”

Pay off credit cards on time every month, advises Kivett. He also shares a tip that can mean the difference between a good credit score and a great credit score. “A lot of people think by making their payments on time they are going to have great credit score. That’s not necessarily so.”

Kivett provides this example: A young person starting out may have a credit limit of $500. They spend the limit every month and pay off the amount every month. While it seems they would have a great credit score, an often missed nuance can come into play. When the credit card company shares the customer’s credit information with a credit agency, it may appear that the card is always maxed out.

To avoid this situation and improve your credit score, Kivett advices to keep paying off your card and to keep your spending habits the same, but ask the credit card company to extend your line of credit to $1,000 or $2,000. The key is to keep the revolving usage (the amount you spend) to no more than 30 percent of your extended line of credit. If you have a $1,500 spending limit, for example, keep your monthly expenditures to no more than $500, and pay it off in full each month. This helps take your credit rating from good to great.

While Kivett provides this example, he also issues a caution about credit cards. “They can be a slippery slope. It’s not worth getting a credit card to get up to your eyeballs in debt.” Think of credit cards as a tool and use only if you are disciplined in paying off purchases each month.

Other options to help establish credit may be a secured credit card through a local bank. With this option, you pay for the credit card upfront, say $500, for example, and that is your limit.

Budgets, Business Plans, and Wise Purchases

Another must-do to get on a path to financial success and keep you on track for establishing credit, whether personally or for a business, is to develop a budget. “A budget is the hardest thing for people to do but it’s the easiest way to get results as far as financial management,” says Kivett. “It works for me and my family. The times that we don’t budget are when we spend more money. It just happens.”

For anyone in business, a business plan is essential. So, too, is spending capital wisely. If a used vehicle or a used piece of equipment will help you reach your goals, go with the used option, especially if you’re just starting out.

For more on “Establishing and Protecting Credit,” see part 1 of this 2-part series. Also see the article “The Young Person’s Guide to Establishing Good Credit” in the August issue of The Leader.

Helpful Resources

  • Ag Biz Planner is an eLearning course offered by Carolina Farm Credit for young, beginning and small farmers. It provides guidance on developing a useful, strategic business plan. Deadline to apply is August 31st, 2018.
  • Articles by Dr. David Kohl, the dean of Farm Credit University and a professor emeritus of ag economics at Virginia Tech. Find his articles on this website.