Our credit scores determine much about how we live our lives. We buy practically everything on credit. When applying for a loan, our good credit scores help us receive reasonable interest rates. In fact, from landlords, to insurance companies, to utilities, everyone looks at our credit scores, as they are a reflection of our financial health. A healthy credit score may determine what various agencies will charge for their services. Today, even employers check personal credit scores before offering a job.
Knowing more about our credit scores and the factors affecting them may help us build a positive credit history. But first, let’s look at how they are maintained by the various credit reporting agencies.
Three major credit bureaus – Equifax, Experian, and TransUnion – calculate credit scores. Though they use the same methods and formula to calculate scores, they sometimes come up with a different rating for various reasons. One agency may have more updated information about an individual. A creditor may have shared information with one agency only, but not with the others. Creditors, while checking on our scores, take the average of the three scores from these three agencies.
Credit scores range between 300 and 850. A score of 680 and above is excellent for obtaining mortgage financing at low interest rates. A credit score of 621 to 679 is an average score and you would have to pay a slightly higher rate of interest. A credit score of below 600 makes us potentially unreliable and harder to obtain credit. When a credit score falls below 600, credit repair steps should be taken immediately.
The following are factors affecting credit scores and basic steps to take to maintain an accurate credit score rating with the credit bureaus:
1. Routinely check payment history and the current credit debt held.
2. Credit history length is a determining score factor. Naturally, the longer a ‘good’ credit history, the better.
3. Do not close old or paid off accounts. These show the credit history length and contribute to higher credit scores.
4. Pay off debts to improve credit scores.
5. On-time payments. Delayed payments appear on credit reports and adversely affect it.
6. An individual’s race, sex, age, level of education, or marital status has no bearing on a credit score, nor does the fact that an application for credit was previously turned down.
Taking care to maintain a high credit rating enables us to receive credit and loans at good rates. Our credit score is a reflection of how we manage our finances and a determining factor for many aspects of our lives. Knowing early on how to have a healthy credit history is the best way to avoid bad credit and limited loan options in the future.
By: Sherry Frewerd
Posts Tagged ‘Personal Credit’
Credit Repair Advice – How to Improve Your Credit Score
April 6th, 2010Personal Credit vs Business Credit
March 27th, 2010
You have a fabulous business idea, you’ve done all the planning and projections and you have confidence that your business start up is sound. There’s only one thing missing. The cash to get it off the ground! You may be thinking that good ole’ Dad or good ole’ Aunt Betty will front you the investment capital you need. After all, they believe in you, right? Well, whether or not your family and friends have faith in you is not really the issue at stake here. Unless you are willing to negotiate a partnership with your family, or they simply have extra money they are looking to invest in a sure thing, you may want to consider the potential strain of borrowing money from people you know can put on your relationships. What if your plan does not go according to plan and you are not able to meet your agreement to repay the personal loan?
You could consider hitting up your local banker for funding, but a) maybe your personal credit score will result in a big fat rejection letter from your personal lending institution, or b) maybe you just don’t want to put your personal assets (your home where you live, for example) at risk.
What we as small business owner often fail to remember when starting up a business is that the act of incorporation with the state means that your business is no longer YOU! Once a business is incorporated, it now is an entity separate from you and despite the fact that you sired and birthed it, it needs to get up and walk on its own and be financially responsible for itself. You go into business to make money, right? So your business needs not be financially tied to your apron strings once you have filed with the state. You no longer need to be personally liable for financial burdens incurred by the business.
Are you aware that you can build a business credit score for your business that is in no way associated with your own personal credit? Your business needs a credit score before it can get a commercial business loan. Dun & Bradstreet and Experian are the primary companies in the U.S. that provide reports on the business credit scores of registered companies. Some of the factors used in determining a business credit score are the business location, the number of employees, filing updates with the state of incorporation and vendor relationships. How many times have do we hear the gurus on finance make the statement that business owners with an investor mentality use other people’s money (OPM) to finance their start ups and daily operating cash flow needs. There are plenty of private lenders out there right now that are looking for small business owners like you. Don’t get stuck in the box that says you have to depend on a traditional lender. Once you have built a strong business credit score and you maintain your loan obligations with your private lender, your business is in a much better position to approach the bank for a loan.
Yes, small business loans are available provided you, as the business owner are willing to take the required steps. These steps are relatively easy to do, yet may take some time, so if your business plan included obtaining financing for your start up business, or capital needs for down the road, it is best to begin to establish a business credit score right off the bat. The process can begin even before you incorporate your business. Find yourself a reliable business mentor that can guide you through the process of establishing a business credit score. In the long run, you will save your personal relationships from the stress that often accompanies borrowing money from friends and family, and you will sleep better at night knowing that the roof over your head is not in jeopardy.
By: Robbi A. Gunter
