Understanding Credit Stacking and Why It Often Fails

What is Credit Stacking?

• Definition:
  • Credit stacking involves applying for multiple credit cards from different banks in a specific order to access large amounts of unsecured credit.
  • Example: Applying for two credit cards each from Bank A, B, and C, aiming for $90,000 in unsecured capital.
• Ideal Scenario:
  • If done correctly, you have one hard inquiry per credit bureau (TransUnion, Experian, Equifax).

Common Mistakes in Credit Stacking

1. Applying for the Right Products in the Wrong Order:

   • Example given where a client applied for business lines of credit without building sufficient business credit first.
   • Recommendation: Start with revolving business credit cards before applying for business lines of credit.

2. Thin File Issues:

   • Even profitable businesses can get denied if the business owner’s personal credit profile is weak.
   • Importance of maintaining a strong personal credit profile:
     • Less than three hard inquiries per credit bureau in the last 60-90 days.
     • At least five personal accounts with at least four being revolving accounts.
     • Under 20% credit utilization.
     • No late payments in the last 24 months.

3. Improper Business Setup:

   • Importance of a correctly set up LLC and having the necessary EIN.
   • Businesses need to be properly classified in the banking system.
   • Consistency in business information across all applications is crucial (e.g., business type, corporation type).

Additional Considerations

• Building Relationships with Banks:

  • Don’t apply for too many accounts or credit lines too quickly.
  • Banks prefer seeing established accounts with regular transactions before approving credit lines.
  • Maintain minimum balances (e.g., at least $3,000-$5,000 initially).

• Consistency in Personal and Business Information:

  • Ensure all personal and business records are up-to-date and match across all documents and applications.
  • Any discrepancies, such as name changes or addresses, can lead to automatic denials.

Conclusion and Advice

• Preparation and Correct Order Matter:
  • Properly prepare your personal and business credit before attempting credit stacking.
  • Ensure all records and applications are consistent and correct.
• Get Assistance:
  • Consider expert advice or consulting, especially if facing denials.

Additional Resources

• Podcast: Insight with IR Channel for more in-depth discussions on similar topics.
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