In the past you’ve heard me speak, and maybe even have received information from me on a variety of business related funding products. You know how challenging it is to get capital in this mercurial economic environment, and I’ve striven to keep you informed with the most up to date info.
I understand that building positive business credit is serious, it takes time and dedication on the part of any business owner. For several years I’ve researched “Building Business Credit”. I’ve interviewed dozens of purveyors of the product. Never have I endorsed one because I didn’t want my sterling reputation tarnished. Over promise……..Under deliver…….was the typical mantra. Charging enormous up front fees and additional “points” on the back end…..They all sing the same tune. Until now……..
Parents, start building your children’s credit early – and do it well. Build credit early for your children – even before college starts, if they plan to take out student loans. Sign over an account that they must pay on time each month. Get a credit card with a low limit, and a bank account that you help them manage monthly. Avoid opening several charge cards at once in their name – not only will they be hard to repay, but having new accounts when they have a short credit history will cause their credit rating to drop. Encourage them to get a part-time job.
“The Credit Card Act of 2009 sought to temper aggressive marketing of credit cards to students by restricting campus promotions and requiring students younger than 21 to have a co-signer, unless they have enough income to get their own card.” And banks are unwilling to offer credit education to their customers. “They do not tell us that no credit is as bad as poor credit. Banks and educational institutions certainly do not think it is their responsibility to conquer the critical task of teaching children about credit.”
Information you as a consumer should know about Credit Bureaus. The Credit Bureaus make money selling your information. The three major Credit Bureaus are in business for two main reasons only and those reasons are to make money, and be profitable for their shareholders. They make their money by selling consumer information to other businesses who lend money. With this information those businesses can assess the risk level of potential borrowers. Many of those businesses are:
Credit Card companies
Employers (with your permission only)
The Bureaus enjoy greater financial success if you have low scores. As a rule, credit card companies do not spend nearly as much money buying the personal information belonging to people that have good credit.
It’s easy to ignore the problems that are created by a low credit rating. Thinking about your credit history isn’t something many people do every day. At some point it will become obvious that the poor credit score is stopping you from moving forward. For most, the moment of understanding comes when it is time to make a big purchase, like purchase a home or a car.
Having a bad credit score makes it very hard to obtain a loan. Even if your score is somewhat decent and you can get approved, your will likely pay much higher interest rates. It may not seem like an additional 2% in interest will result in much, until you do the math. A mere 2% higher interest rate will result in thousands of extra dollars spent.
The first thing that you need to do in order to begin raising your score is to pull copies of your credit files and scores. You can do that by visiting Credit Viper.
Recently I had a good friend call me for some financial advice about credit card debt. I’m not going to try and claim that I’m a certified financial planner, but I’m not afraid to offer my financial opinion. My friend has run into a situation that has become very common place among many Americans, mounting credit card bills. He was specifically wondering if there was an easy way to lower his interest rate and begin paying down the balance after his bank didn’t have any solutions. I suggested taking a friendly approach to financing and brought up peer-to-peer lending.
What is the proper measure for creditworthiness in this day and age?
Apparently, it is no longer simply the credit report or the verdict of one’s local banking institution. There are so many individuals who fall short of traditional standards of creditworthiness that the marketplace has naturally made room for non-traditional lenders. Besides the controversial subprime mortgage lending industry that most people are by now familiar with, there is a increasung trend in person-to-person lending organizations. Websites like Prosper.com facilitate lending transactions between individuals and other single or small group benefactors. Using such a service empowers people who may not otherwise receive loan funding to finance their dreams and goals.
As an adult almost everything you do revolves around your credit. Your ability to purchase a home, a car, a big screen TV. It also affects your insurance rates, renting your apartment and even getting a job. Heck, besides marrying my wife for her sheer inner and outer beauty, the next biggest thing that attracted me to her was her credit. YES, that’s right!!! It was that important she handled her finances how I did and was one of the first questions I asked her. We laugh about it now but it caused a definite stir in the beginning. So lets talk about credit.
First there are 5 things that are factored into the algorithm used to calculate credit. They are:
* Payment history
* Amounts owed
* Length of credit history
* New credit
* Type of credit used
Today we’re going to discuss how a HELOC (Home Equity Line of Credit) can negatively impact your credit. Odds are some of you out there have tapped into the equity in your home to finance your business endeavors. Quick and easy right? Yes, but it may have devastating effects on your personal credit. You’ve done everything you’re supposed to, paid on time, and have no clue why your score went south. Here’s why:
30% of your personal credit score is made up of how much of your credit has been utilized. Of particular importance to a lender is the percentage of your revolving you have used. When that number exceeds 30% your scores can suffer. When that number exceeds 50% your scores can plummet. Sometimes by as much as 50 points for a single occurrence.
Credit reporting issues have caught my attention twice in the last few days. Just today an article in Business Week reports on a Capitol One practice of reporting all small business loans to consumer credit bureaus. Typically business loans would not impact the credit report of the business owner unless the business was delinquent on the loan. Now, for Capitol One borrowers at least, current and performing business loans will end up on the owner’s personal report as well.
How that might impact your personal credit score is beyond me, but it seems that you as a business owner ought to know this is happening and monitor it to understand its implications for you. Yes, I know we all are reminded to monitor our personal scores, but I suspect you, like me, do a spotty job of it (business owners tend to have a better pulse on their business credit).
One of my readers has recently posed the question “in what cases should a manager look at equity verses debt financing”. First let’s make sure we understand the difference between the two.
Debt financing is exactly what it says. Incurring debt (taking out a loan) to finance the start-up or purchase of a business. You can also take out a loan to grow or expand a current business. Debt financing can take on many different forms. SBA loans/lines, traditional business lines of credit/loans, equipment leasing, etc. You can also find alternative debt financing through vehicles like credit card advance funding, hard money loans and hedge fund loans just to name a few.
Equity financing typically comes from an angel investor, a venture capital firm or the like. When a group or individual makes a cash infusion into your business in exchange for an interest in your company, it is an equity investment.