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A Bad Credit Problem is a Temporary Setback not a Death Sentence

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Bad Credit Setback

Bad Credit Problem

Having a bad credit problem is something we’ve been hearing now more than ever before and it’s a label that no one wants to be given.

Some people would argue that bad credit scores are caused because of too many people living beyond their means and living paycheck to paycheck. Once the economy went south and paychecks were cut along with thousands of jobs being eliminated everything else spiraled downward including personal credit ratings.

I believe not everyone who has bad credit should be considered a bad credit risk.

What I mean by that is some people have gone through serious financial hardship during the recent economic downturn and only because of a job loss or wage cut have they started becoming late on payments or skipped payments or exceeded card limits.

But those same individuals may now be back on their feet with a new employer or maybe have taken on two jobs to make ends meet and catch up on back payments. So, a bad credit problem can be a temporary setback but never a death sentence.

There are also those who moved out of state for employment and had no choice but to walk away from their homes because they couldn’t sell it for what was owed. Some have had job offers out of state but can’t make the leap due to the eroding values of homes.

One man, who requested anonymity, had a job offer in Colorado that he can’t take because he can’t default on his $470,000 mortgage on a house now worth $220,000.

Bad credit is not only affecting consumers who have had job losses or cutbacks but small business owners have also seen their good credit fall to the wayside as well. Declining sales and scarcity of credit has also caused many to resort to using personal credit cards, personal loans and savings.

Now when it comes to getting bad credit personal loans or business loans larger banks have stiffer lending procedures compared to smaller banks, community banks and credit unions. These smaller banks provide more one-on-one access to a loan officer and put more emphasis on a borrower’s character rather than just applying a credit-score model.

There’s a combination of factors that affect your profile in a positive or negative way like payment history, balance chasing, debt to credit limit ratios, new credit, derogatory items, inquiries and so on but one of the key risk assessment tools that lenders use to determine whether you are a bad risk or a good risk is based on your FICO score.

Your FICO credit score can range from 300 to 850 with 720 or above being considered top notch credit. There are also non-FICO credit scores offered by some of the major credit bureaus like Vantage score which was created to compete with FICO but that particular scoring model has not been widely accepted by the lending industry.

Anything below a 680 is considered “sub-prime”, or a bad credit score. So the higher your credit score, the better, especially if you want to apply for a loan or business line of credit.

But, each of the three major credit bureaus records your credit score a little bit differently because not all lenders report to all three credit bureaus. So you want to make sure to leverage your highest score!

A real quick example of this was one of my clients was preparing to apply for a small business loan from his local bank and prior to applying we ordered each of his credit reports and scores from all three main bureaus.

His Equifax file had a 720 fico score while his other two scores were 40-50 points lower. We checked with his banker to see which bureau they pulled from for loan qualification and sure enough that particular bank pulled from Equifax. This allowed him to get approved for a loan with the best available bank rate.

Now keep in mind that in addition to FICO many lenders use their own internal scoring systems as well.

Remember, a bad credit problem is temporary and you can recover from it when you have a personal credit repair plan and a solid strategy.

To access business credit insider secrets, premium vendors, leasing companies, business credit cards, and lenders that report to all the major business credit bureaus become a member of my Business Credit Insiders Circle. Submit your name and email below for details and receive a free audio seminar ($597 value) =>

Marco CarbajoMarco Carbajo is a business credit specialist, author, speaker, and founder of the Business Credit Insider’s Circle. He is a weekly columnist for Dun & Bradstreet Small Business Solutions, a business credit blogger for All Business & American Express Small Business and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.

How Instant Approval Business Credit Cards Compete for Business

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Instant Approval Business Credit CardsInstant Approval Business Credit Cards

The surge in applications for instant approval business credit cards has caused a dramatic increase in credit card usage among small business owners according to the 2009 Small Business Credit Card Survey.

Since April, the top TARP recipients cut their small business loan balances by $8 billion dollars. While traditional loans have dried up and small business credit lines get cut, banks have decided to funnel more of their small business lending with business credit cards.

Even though some leading credit card companies like Advanta left the card business entirely it’s refreshing to see that banks like J.P. Morgan Chase card services launched four more credit cards specifically targeted at small-business owners.

As these instant approval credit card offers enter the market to compete for your business it’s important for you to consider all the business credit card options and compare the costs to the benefits before you apply.

Here are just a few to take into consideration:

  • Cash Back – Many business credit cards now offer cash back rewards. For example Chase’s new InkSM Cash has unlimited cash back and accelerated earnings on its card. This is a great perk because it rewards you for spending on everyday business purchases that you do already. Make sure you understand what the card’s limitations are and read the fine print before you apply.
  • Frequent Flyer Mileage – Getting frequent flyer or airline miles cards is a very popular perk for business travelers. Once you accumulate enough points you can redeem them for airline discounts or free nights at participating hotels. Make sure you know if there are any limitations prior to applying.
  • No Annual Fees – Many business credit cards now waive the annual credit card fees. Keep in mind that your credit score needs to be strong to get these credit cards. However, if your business pays its balance in full every month then this is definitely the way to go if you can. In effect, if you pay your balances, you get the credit card for free.
  • Zero Percent Balance Transfers – This can help you reduce your high interest debt. Be sure to never miss a payment or you’ll immediately lose your interest free terms and have to pay the full rate.
  • Payment Reporting – Traditionally, the majority of the easy approval business credit cards in the marketplace report your payment history and revolving debt to your personal credit files and not to the business credit bureaus.

However, some companies have started to catch on to the new world of business credit cards like JP Morgan Chase and American Express. They understand that business credit cards are for business purchases and any debt incurred should only report to business credit reports not your personal one. These unsecured business lines of credit shelter your personal credit for personal necessities such as auto loans, mortgages, student loans, and personal credit cards.

When you apply for instant approval credit card offers they check your personal credit report, but your payment history and debt report to the business credit bureaus. This is what every small business owner like you should demand from a business credit card.

One important catch is if your accounts become delinquent then these leading credit card companies will report the delinquency to your consumer credit bureaus as well.

Finally, keeping liability strictly tied to your business can be accomplished with no personal guarantee business credit cards. There are less than forty of these types of cards available and you will need to have a strong business credit file in order to qualify.

With the growth in business credit bureaus, data suppliers, and business credit files across the country more and more leading credit card companies will have to supply an ever growing demand of new business credit cards with high credit limits that will have to measure up to the needs of today’s small business owner.

I encourage you to choose credit cards that will best serve the needs of your business while supporting the growth of your business credit file and limiting personal liability.

Business Credit Resources

» Start Business Credit

» Business Credit Builder

» Business Credit Blog

Looking for business credit? Become a member of my Business Credit Insiders Circle and gain access to a proven step-by-step business credit building system. A system that provides you access to vendor lines of credit, fleet cards, business credit cards with and without a PG, funding sources and lenders that report to all the major business credit bureaus. Submit your name and email below for details and receive a free business credit building audio seminar ($597 value) =>

Marco Carbajo

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for AllBusiness, a subsidiary of Dun and Bradstreet and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in the SBA Community, American Express Small Business, Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.

How GMAC helps Small Business Owners Establish Business Credit

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Establish Business Credit GMAC

Establish Business Credit with GMAC

 

While there are many reasons to establish business credit many small business owners overlook the advantages of financing their autos with corporate credit. The key is keeping all your business related expenses and obligations separate from your personal credit files.

This includes minimizing the use of personal credit checks and personal guarantees to get business credit.  Are your business debts reporting on your personal credit files? Does your auto loan or lease for your company report to your personal credit files?

The good news is there are companies like GMAC that understand the importance of keeping personal obligations separate from your business debts.  More importantly one program it offers reports your payments to your business credit report and not your personal credit files.

Third Party Guaranty by GMAC

This program was specifically designed for business owners to keep their automotive financing separate from personal credit. It even allows you to keep your personal name off of the vehicle contract and title.  Now that’s what I’m talking about!

Now you may have to provide the additional financial backing that GMAC requires like a personal guaranty if your established corporate credit cannot support the loan or lease. 

Here’s a quick rundown of the benefits:

  • Build credit in your business name only.
  • Your vehicle purchase or lease will not be reported on your personal credit reports, unless your business defaults.
  • Added protection from liability, since your name remains off of the vehicle’s title and contract.
  • Personal privacy since you are only personally contacted in the event of default

Now to take it a step further suppose your business needs to purchase multiple vehicles. GMAC also has a program called the GMAC Commercial Line of Credit.

The best part of this program is your business can provide the financial data it needs to establish a business line of credit with GMAC one time rather than provide the same information for each vehicle purchase. This is extremely convenient especially if you have to purchase or lease multiple vehicles at different times and at different dealerships.

Think about the positive impact this will have on your personal debt-to-income ratios if suddenly your future auto loans or leases stop reporting on your personal credit reports and now report to the business credit bureaus.

There are also several other major automotive companies like GMAC that offer vehicle financing programs designed to establish business credit while protecting your personal credit files. We offer these and many other credit sources to members of my Business Credit Insiders Circle.

Take advantage of all the benefits that major corporations have been utilizing for years.

To your business credit success!

 

Business Credit Resources

» Start Business Credit

» Business Credit Builder

» Business Credit Blog

To access business credit insider secrets, corporate fleet suppliers, premium vendors, leasing companies, business credit cards, and lenders that report to all the major business credit bureaus become a member of my Business Credit Insiders Circle. Submit your name and email below for details and receive a free audio seminar ($597 value) =>

 

Marco CarbajoMarco Carbajo is a business credit specialist, author, speaker, and founder of the Business Credit Insiders Circle. He is a weekly columnist for Dun & Bradstreet Small Business Solutions, a business credit blogger for All Business & American Express Small Business and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.  

Business Credit: Top 10 Myths-Part 2

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Business Credit Building MythsBusiness Credit: Top 10 Myths

 

On the previous post I covered the first four myths on building business credit. I encourage you to bookmark these posts so you can revisit them at any time.

Here are the remaining myths of the top 10 surrounding the corporate credit industry:

6: All vendors, suppliers and lenders report to the business credit bureaus

Not true! There are over a half a million vendors and suppliers that are willing to extend vendor lines of credit to your business but less than six thousand of these companies report to the business credit bureaus. What’s even more alarming is not all of these companies report on a monthly basis either. Some only report to the business credit bureaus once every six months!

5: All business credit cards report to the business credit bureaus

Currently there are over five hundred business credit cards in the marketplace but less than forty will issue a card without requiring a personal credit check or personal guarantee. These select cards report solely to the business credit bureaus and not your personal credit reports. However, there are also a few business credit cards that require a personal guarantee but only report to the business credit bureaus.

4: Every business has a business credit profile with the business credit bureaus

A Dun & Bradstreet profile requires that a business owner first apply for a DUNs number and submit their business information. Corporate Experian and Small Business Equifax create a business profile report for your company once a lender or supplier that you have payment experience with submits a data record. There are many other business credit bureaus that require business owners to complete a registration process prior to creating a profile.

3: Buy a shelf corporation and get all the business credit you’ll ever need

Shelf corporations provide certain advantages when it comes to obtaining credit simply from the fact that a business that is five years old has a much greater influence to a lender than a business that’s been in business for a few months.

With that said a shelf corporation alone will not enable you to obtain all the credit you need because there are many other factors that are taken into consideration. For example, if you have a ten year old shelf corporation that needs a $100k business line of credit a bank will need to view your company’s bank rating, balance history, financials, tax returns, profit & loss statements and so on.

2: All you need is a strong paydex score to qualify for a business line of credit

While a strong business credit file does play a part in qualifying banks look at many other factors. This includes your bank rating, balance rating, NSF track record and personal credit scores.

1: All you need is an 80 paydex score to get unlimited business financing

This by far is one of the biggest myths in business credit because an 80 paydex score with Dun & Bradstreet is said to be like having a 720 personal credit score. While that may be true to some degree there are some important details that many fail to mention. For example, you can have four positive trade references reporting with $200 being the highest credit limit on all four accounts and still score an 80 paydex.

This is because DNB’s rating system requires a minimum of four positive trade references but if the four you have are small limits then this hardly qualifies your business to get approved for thousands of dollars of cash credit, lease credit, business loans and business lines of credit.

In addition, having only a DNB file is like having only one personal credit file with the credit reporting agencies. Let’s say all you have is a personal credit file with Equifax but have no file with Transunion or Experian. You would never be able to get approved for a mortgage because you don’t have a completed financial picture for lenders to review your creditworthiness.

This holds true for your business as well. In order to show a complete business credit report for your company then you will need to have a profile with the three main business credit bureaus.

Now that you know the myths surrounding the industry I encourage you to share this information with other small business owners and put your company on the path to corporate credit success!

Business Credit Resources

» Start Business Credit

» Business Credit Insiders Circle

» Business Credit Blog

 

To access business credit insider secrets, premium vendors, leasing companies, business credit cards, and lenders that report to all the major business credit bureaus become a member of my Business Credit Insiders Circle. Submit your name and email below for details and receive a free audio seminar ($597 value) =>

 

Marco CarbajoMarco Carbajo is a business credit specialist, author, speaker, and founder of the Business Credit Insiders Circle. He is a weekly columnist for Dun & Bradstreet Small Business Solutions, a business credit blogger for All Business & American Express Small Business and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.  

Top 10 Myths about Building Business Credit- Part 1

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Business Credit Building MythsBuilding Business Credit Myths

 

Building business credit is one of the greatest opportunities for small business owners. It provides our business with the ability to obtain financing for unforeseen expenses, operations, expansion costs and investments.

There’s so much going on with building corporate credit that there are several different fields devoted to servicing it, including business credit cards, small business loans, accounts receivable factoring, merchant account cash advance, business lines of credit, equipment financing, secured/unsecured loans and many others.

These types of financing have been around for a long time, so you’d think that by now we would know all there is to know about building small business credit. After years of studying and applying every aspect of it, there are still many facets of business credit that remain secretive. And because building business credit is complex, we tend to simplify information about how it works in order to make it more understandable.

This has resulted in many myths about establishing business credit. Let’s look at the 10 myths that have been circulating about business credit, beginning with, of all things, its starting line.

10: Sole proprietorships can establish business credit

A sole proprietorship is not considered a separate legal structure. Instead, it is considered a personal extension of you so you don’t have any protection from them. So every time you apply for credit for your business you will need to supply your social security number as the number that identifies your business.

As a result you are responsible for all debts and agreements you enter into in the name of your business; you’re also on the hook for all of your partner’s actions in the name of your business as well.

9: Using personal credit for business has no effect on the corporate veil

When you use your personal credit for the benefit or operation of your company it can lead to an “alter-ego” decision by regulatory or a financial organization, and a piercing of the corporate veil. This would directly endanger the owner’s personal assets and make the owner or owners directly liable for the penalties or repayment of any debts incurred by the business or corporation.

8: Obtain unlimited business credit for real estate investing

There are certain industries like real estate investing that are flagged as a high risk with the business credit bureaus. If you plan on investing in real estate then you will want to make sure that the company you are building corporate credit for is not “real estate investing”. Most banks will automatically turn you down because your company is operating in a high risk industry. You still will be able to invest in real estate but you may have to set up a business that does business development, business management, business consulting, marketing & advertising, training and development, etc. and then operate your real estate investing from a separate division of the company.

7: Credit repair is illegal and cannot be done.

False.  Consumers have every right to repair their own credit in accordance with the Fair Credit Reporting Act. If you choose to use a credit repair company be sure to verify their track record with the BBB. Also, if you are paying for the service before its rendered be sure the company is in compliance with the Credit Repair Organizations Act (CROA). *Non Profits and Credit Union Service Organizations (CUSO) are exempt from CROA.

 

Read part 2 of the  Top 10 Myths about Business Credit

 

Business Credit Resources

» Start Business Credit

» Business Credit Builder

» Business Credit Blog

To access business credit insider secrets, premium vendors, leasing companies, business credit cards, and lenders that report to all the major business credit bureaus become a member of my Business Credit Insider’s Circle. Submit your name and email below for details and receive a free audio seminar ($597 value) =>

Marco CarbajoMarco Carbajo is a business credit specialist, author, speaker, and founder of the Business Credit Insiders Circle. He is a weekly columnist for Dun & Bradstreet Small Business Solutions, a business credit blogger for All Business & American Express Small Business and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.  

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