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Build your credit lines
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December 22, 2000: 11:23 a.m. ET
Use your good personal credit to build financial cushion for your business
By Jane Applegate
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NEW YORK (CNNfn) - Having a personal credit line or two is a great cushion for the times when you are a little short on cash -- if a client doesn't pay on time, or you decide at the last minute that you really must rent that exhibit space at an industry trade show.
This cool financial strategy was actually taught to me by a banker. Ian Jack is a talented composer and musician who fell in love with my best friend, Francine, and went to work for her father's bank. He used credit lines to build an impressive real-estate portfolio and now owns his own mortgage banking firm in Los Angeles.
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Using credit wisely is the best way to create a positive credit history.
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My credit helped our small company stay afloat until we landed our first big project. Through the years, we've relied on personal credit lines to fill in the gaps when our biggest client deliberately held their payments beyond 30 days to collect the interest on my money. We've never applied for a commercial credit line because, fortunately, our cash flow is steady enough to pay the bills.
Here's how you build up a personal credit line: First, consolidate all your accounts in one bank. Then introduce yourself to the branch manager and get to know the tellers. If you've held a well-paying job for at least a year, or your spouse has a good job, apply for a personal credit line of at least $5,000. A credit line is different from a credit card. It has a checkbook and operates like a checking account, but you're dealing with borrowed money and paying substantial interest.
Use it or lose it
After you obtain the credit line, it's time to use it. When you are absolutely sure you're going to receive a big payment, use the credit line checks to pay all your bills or to take a cash advance. A few days before the payment is due, pay off the entire amount and zero out your account.
If you do max out and pay off your account a couple of times, in most cases, the bank will automatically increase your credit line limit. Bankers like to see that you are using their money prudently and love to see a balance being paid off, even though they aren't making any money on interest.
If the bank doesn't automatically increase your limit after a few months of doing this, call the service center or ask your branch manager for an increase.
Once you've built up your borrowing power, you might want to apply for a couple of credit lines at different banks. It sounds crazy, but using credit wisely is the best way to create a positive credit history.
I have impeccable credit and never have problems obtaining new credit cards or credit lines, in part because I have zeroed out my balances over the course of our seven years in business.
So give this great idea a try. But remember, it only works if you have a good personal credit history and a steady income. 
Excerpted from 201 Great Ideas for Your Small Business, Copyright 1998 by Jane Applegate. Published by arrangement with Bloomberg Press. Excerpts appear Fridays on CNNfn.com.
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