By:
Jane Ray
Business
Advisor
Guam
SBDC
Sometimes
having a great business idea isn’t enough to bring your dream into reality. There are factors such as the 5 Cs of Credit that
will affect your business’s ability to get the financing that it needs. One of those Cs is credit score. Credit score is an important factor that can
have a significant impact on your quest to financing. Your credit score reflects how you have handled
your personal credit in the past and predicts the likelihood of how you will
handle it in the future. That three
digit number can reflect your character as a business owner and also
demonstrate how you have handled your own personal finances. The way you manage your personal finances can
demonstrate how you are going to handle your business finances in most
cases. Therefore it is imperative that
you, as a business owner, should know your personal credit score and credit history
before reaching out to lenders.
How do I check my
credit score?
Generally,
you can retrieve your personal credit report from one of the three credit
bureaus; TransUnion, Equifax, and Experian.
As a consumer, you are allowed to obtain a free copy of your credit
report through all three of the credit bureaus every year. The credit reports will allow you to check
your personal information; name, social security number, and address. You should also check your account history,
account information, late payments, collections, and tax liens. It is recommended to check for any unexpected
errors or surprises. This will allow you
to correct any errors and address any issues such as collections prior to
applying to a financial institution.
Since
financial institutions are not required to report your activities to all three
credit bureaus, some information can appear in one bureau but not the other. It is best to check with all three credit bureau
reports to ensure accurate information is reflected on each of those
reports. Some financial institutions
only obtain a single credit report from the credit bureau with which they work
directly when reviewing loan applications.
It is crucial to check credit reports from all three credit
bureaus.
Personal
credit scores range from 300 to 850.
Credit scores vary between credit bureaus; each bureau has its own
scoring models. Generally, credit score
is computed based on the following components:
payment history (35%); capacity (30%); length of credit history (10%);
types of credit used (15%); and new credit (10%). Paying bills on time is one of the most
critical parts of maintaining a good credit score while avoiding excessive use
of lines of credit and credit cards is another way to not adversely impacting
your credit. Any usage over 35% of the
credit limit can considered excessive; therefore keeping track of what you
spend on credit card is good financial practice.
How to dispute
when there is an issue?
If
you identify errors or issues on your credit report, you can dispute the
information with the credit bureau the information is coming from. You can either dispute the information
online, by telephone, or by mail. It is
helpful to have a copy of the credit report with the incorrect information when
disputing; each report has a specific number identifying when it was
generated. This credit report number can
assist the credit bureau in finding the incorrect information faster. You should also provide any supporting
documentation if you have any. It is not
recommended to send the original document however a copy of the document will
be adequate. Expect a 30 to 45 day
timeframe for processing as the credit bureau will contact the source to
verify, correct, and update the databases.
If you are experiencing identity theft or other credit issues, you can
request for Security Freeze or Fraud alert on your credit report to prevent any
unauthorized access. Before selecting
either of those options it is important to understand that Security Freeze and Fraud
Alert will prevent creditors from accessing your credit reports unless you have
provided the authorization. Sometime it
can also delay loan application process if you have forgotten that you placed
one of those options onto your credit report.
How long does
negative information remain on my credit report?
|
Types of Information
|
Duration
|
|
Accounts paid as agreed
|
10 years from the date of last activity
|
|
Accounts not paid as agreed
|
7 years from the date the account first became past
due
|
|
Late or missed payments
|
7 years
|
|
Collection accounts
|
7 years
|
|
Judgements (paid or not)
|
7 years
|
|
Paid Tax Liens / Unpaid Tax Liens
|
7 years / Indefinitely
|
|
Bankruptcy -
Chapter 7 / 11 / 13 non-discharged or dismissed
|
10 years from date filed
|
|
Bankruptcy – Chapter 13 (Discharged)
|
7 years from the date filed
|
|
Credit Inquiries
|
2 years
|
Source: Moogalian, Diane (2010, May 10). FAQ: How
Long Does Information Stay on My Credit Report? Retrieved from October 17,
2016, from http://blog.equifax.com/credit/faq-how-long-does-information-stay-on-my-credit-report/
Where can I find
information about credit?
Have
realistic expectations and be aware that paying past due payments or addressing
delinquent collections will not immediately improve your credit score. It takes time to improve your credit after
financial difficulties or hardship. There
are many online resources that can help you if you are in need of financial
education. Each credit bureau has an educational
center that discusses credit related topics.
Other web sites, such as Credit Karma and Nerd Wallet, have features on
comparison shopping on different credit products and credit report monitoring services
that are available to you. If your
financial issues come from poor financial habits, seeking professional help
from a financial counselor or financial professional might help you address the
root of the issue.
If
you are currently in business, or are planning to go into business, you will require
funds to start or to expand your business.
Do not circumvent or work around adverse credit issues or you may miss a
once in a life time opportunity. It is
better to address it now rather than wait until later when you are in urgent need
of financing. Once you miss the opportunity, you won’t know when the next one
will arise. Being financially
responsible with your personal credit will prepare you to achieve your
financial dreams by being your own boss.
Jane
Ray, MS CCFCU received her Bachelor in Business Administration with a
concentration in Finance and Economic from the University of Guam. She then
received her Master in Accounting and Financial Management from the University
of Maryland University College. Ray has
over ten years in commercial lending experience and previously awarded the
Small Business Banker of the Year award by the Small Business Administration.
