Build Credit for Your Business

Is your business credit worthy?  Do you have a business credit score?  If not, how can you build your business credit quickly and easily?  Small business owner?  Still running your business under your own name?

If you’re still running your small business as a sole proprietorship, or even a partnership, you probably already know that you need to separate your business and personal finances as much as possible.  But even those of us who have already separated the two often forget to start building our business credit score until we really need it, and by then, it’s usually too late.  As a result, we end up paying more for goods and services than we need to simply because we didn’t plan ahead.

Building your business credit score early on can eliminate the inconvenience and the extra cost associated with having to comingle your business and personal credit when you really need it.  Just like your personal credit score, building a business credit score takes time and effort, but it is an effort that will pay off later on.

Here are a few tips for building your business credit worthiness:

1. Incorporate your business!  By incorporating your business, you legally separate your business and personal credit profile.  This protects you from personal liability for the actions of the corporation, as well as from the corporation’s debt obligations.

2. Obtain an employer identification number (EIN).  A business’ EIN number is essentially it’s social security number, and you’ll need it to incorporate the business, apply for any business loans, credit cards, or vendor accounts, open a business checking account, and file the tax returns.

3. Open a business bank account.  Every business needs a business checking account.  Not only will you need it to track and handle the business finances, but it’s legally required to separate your personal and business liabilities.

4. Establish business credit with the main credit bureaus.  Just like with individual credit, your business credit will be reported to three credit bureaus.  Dun & Bradstreet is the most common, so the first thing that you will want to do is to apply for a free DUNS number, then start working on your trade references.  Experian and Equifax also track business credit, but the process is more automatic, much like your personal credit score is tracked.

5. Establish a line of credit with vendors.  If you want to build your business credit, open a line of credit with companies that report to the business credit bureaus. You should have three to five lines of credit with vendors that report payment information, such as a small business credit card, to establish strong business credit.

6. Make your payments on time, every time.  To build business credit, it’s crucial to repay all your creditors and lenders on time. Your payment history with vendors, lenders, and credit issuers is the most important factor when business credit bureaus calculate your business credit score. Similar to your personal credit score, late payments will hurt your business credit score. A low credit score is the leading reason for credit denial. If your credit is damaged, consider opening a secured business credit card to help rebuild your score.

Whether you’re just starting out or you’ve been in business for a while, establishing your business credit score opens the door to many opportunities for growth.  Low-interest business loans, favorable payment terms with your suppliers, and so many more benefits await businesses with great credit – just like individuals with great credit!

Got Stimulus Money?

By now, most people should have gotten that second stimulus check… what did you do with yours?  Still have it?  If so, here are just a few thoughts on what you could do with that money besides spend it!

If your credit needs improvement, or if you need to establish credit, your stimulus money is the perfect place to start!  Consider using all or part of it to set up a secured credit card account.  They’ll hold the money for you and you’ll be on your way to rebuilding your credit.

Another option is to pay down your credit card balances with your stimulus money.  Not only will that free up some available credit, but you’ll save money on interest, and you might just see a little boost in your credit score.

Or you could simply save the money!  Put it into your savings account for when you need it.  No matter what you do with your money, make sure you don’t just blow it.  Too many people run out and buy that big screen TV, fancy new computer, new phone, or other toy that just came out, only to need the money for something once it’s been spent.  So, before you run to the corner big box store, sit down and really think about what you’re going to do with your check.

How Long Does It Take To Get a Credit Card?

So, you’ve applied for a brand new credit card, been approved, and now you’re wondering just how long it will take before you have the new credit card in hand? Assuming that you did not apply for one of the new instant approval cards, it can take five to ten days for approval, and then you should receive your physical card within five to ten days after approval.

Once you’ve received the card, you’ll need to activate the card by following the instructions you’ll receive with the card. Depending on whether you requested a PIN number, that will arrive separately, but typically you’ll be able to use the card once you’ve received and activated it.

If you’re looking for a new credit card, here are a few options for those who are just starting out with credit:

I Have Poor Credit. Can I still Get a Credit Card?

If you’re got poor credit, you can still get a credit card. Granted, you likely won’t qualify for the best deals, rewards, or interest rates, but there are options. Certain credit card companies will actually work with you to build your credit score over time.

When you are approved, it will likely be for a much lower credit limit, and there may be a fee attached to the issuance of the card.
Because the interest rate will be significantly higher, you will want to pay off the balance every month. Just remember this is a starter card. Assuming that you use the card responsibly and that you pay in full and on time every time, you should see your credit score improve over time, thus enabling you to earn access to better credit card offers in the future.

Here are a few options for you to consider:

Making a Living in the Midst of a Pandemic

If you were laid off by your employer today, what would you do?  Would you find another job?  Do you have enough money in savings to survive for a while?  What would you do next?  

In years past, this would have been a much easier question to answer.  Now, with the pandemic affecting literally every part of our lives, the question is a lot harder to answer.  From the mandates that closed so many of our businesses to those that are still regulating what businesses can operate and how they may do so, finding a job just keeps getting harder and harder.  And if that's not bad enough, it seems like every single day we hear about yet another industry that is laying off thousands of people.  

Will those jobs come back?  Studies are predicting that up to 40% might never come back, so if you are one of those that's laid off, you'd better plan your way forward rather than wait a few months and hope that the economy will bounce right back, because chances are, it may not.  

With that in mind, let's look at the different ways to move forward.  If you've got savings or you received a decent severance package, you can live off that for a bit, but at some point, you'll most likely need to look for another job if that's your plan.  And for many of us, that will work, however, expect the competition for those jobs to be fierce as there will be more candidates competing for each position.  You may also find that salaries and benefits offered will be significantly lower, both due to the availability of applicants, and to the effect the pandemic has had on the businesses themselves.  Budgets will be tighter for years to come to make up for losses incurred over the duration of business shut downs, slow downs, increased regulating, etc., and if budgets are down, salaries will also be down.  

Another option for many might be to start your own business rather than go back to work for someone else.  That way, assuming you're successful, you'll have some control over both your time and your economic future.  But, what type of business should you start? 

First and foremost, look at your experience.  What did you do in the workforce?  Is that something that you can do on your own?  If so, are you interested in continuing to do so?  If not, what are your hobbies, your interests, your passions?  Is that something that you can turn into a career?   Just remember, whatever you choose needs to be something that you're good at, something that you enjoy doing, and something that you can make money at.  If not, you're less likely to succeed, and at this point, success could mean the difference between going back to work or not.

Secondly, don't be afraid to start your business as a sideline.  If you're still working, spend your free time setting up your business, making product, bidding jobs, selling things… whatever it is that you choose to do.  There will be far less stress if you're able to start slow and still earn money while you're building your own business.  

And finally, keep at it!  Don't quit.  Too many people start something and they never finish.  Building a business takes time and effort, just like doing a job takes time and effort.  The difference is, if you're working for yourself, you call the shots.  

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Credit Tips for Buying Your First Home

Thinking about buying your first home?  Before you even consider making an offer, before you get pre-qualified, before you do anything at all, you'll want to take a good, long look at your credit report. Believe it or not, even those of us with the best credit almost always have something that holds up the mortgage loan process, so if you can head off any problems before you start the process, you might make it a little less stressful later on.  

Here are a few tips to help you along:
 
  • Closing Old Accounts Can Actually Hurt Your Credit
    • One of the main factors that lenders look at when reviewing your clients’ credit history is how long accounts have been open.  They typically average all current and past accounts to get an average length of time. The longer your credit history, the better. By closing an old account, you are effectively reducing the impact that individual account may have on your overall credit history. Instead of closing the account, keep it open.
  • All Debt is Not Equal
    • Lenders look at the specific type of debt to better understand the risk associated with it. Short-term accounts, like credit or charge cards, are considered more risky if the account has a high amount of revolving debt. This is due, in part, to the requirement that credit cards be paid off monthly.  In contrast, a 30-year mortgage is considered to be a long-term debt and is treated as such. Therefore, just because you have a car loan with a high balance remaining, does not mean that it will hurt your credit as much as a credit card that is maxed out.
  • Credit Repair Doesn't Always Improve Your Credit Score
    • The old adage of “if something is too good to be true, it probably is” couldn’t be more accurate in this example. Younger generations have become increasingly interested in getting help establishing or repairing their credit.  Companies such as Credit Karma, Credit Sesame, and even the major three credit reporting companies such as Equifax, Experian and TransUnion offer ways to improve or “boost” credit. However, buyer beware.  These companies can only assist you with creating a plan to pay down or consolidate debt. They cannot magically make or reduce the amount of debt a person has — this can only be done by paying off an account.
  • A Paid Off Bill is Not Immediately Removed From Your Credit Report  
    • Unfortunately, a derogatory mark like a collection or missed payment can stay on your credit report for up to seven years. While paying this off will stop future attempts by the collection agency or banking institution to collect on the debt, there is no way to remove a derogatory mark from your credit report unless it was reported incorrectly due to fraud or identity theft.
  • Marital Status Changes Can Affect Your Credit Score
    • Information like income, employment and relationship status are not reported to credit bureaus. Questions regarding this information will likely be asked during the credit application process in conjunction with your credit score.  However, they will not show up on a credit report. This is important for those going through a separation. If one partner does not pay a debt and the other partner is on the account, it will negatively impact both parties.
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Working from Home?

 

Are you one of the millions of people who have been asked to work from home this year?   Believe it or not, shifting to staff members working from home is actually proving beneficial to businesses and employees in many areas.   So far, 65% of workers say they are more productive in a home office than in a normal office, and, even more interesting, 67% of employers say remote workers are more productive.

Employers and employees alike are discovering that working from home can result in lower stress levels for workers, reduce commuting times and costs, and help the environment. An infographic (below) from UK firm Computers in the City explores the benefits of remote work and delves into how businesses can ensure employees are healthy, happy, safe, and productive while working from home.

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Repairing Your Credit Score

As if 2020 wasn't bad enough already, what with a pandemic, lockdowns, and an economic downturn unlike any other, millions of people also lost their jobs… and that will leave millions of us with blemishes on our credit reports that can and, in many cases will, take years to clean up.  We all know what the effect of just one missed payment can be, but what about months of missed payments?  What about repossessions, evictions, and the inevitable court cases that are sure to arise?  Is there anything that can be done to salvage some of your credit score?

Although there really is no good answer to these questions, there are some things that you can do to mitigate some of the damage:

  • Review your Credit Report:  Even though it is not a particularly pleasant activity in light of recent events, sit down and go through every single item on your credit report.  Make a list of the changes (favorable and unfavorable) over the past few months, and then, address each of the unfavorable items individually.  What options are available to you for correction of each and every item?
  • Put a Statement in your Credit File:  Most credit bureaus have the option for you to put some notes, explanations, letters, etc., into your file.  Take advantage of those options!  While it may not improve your score, it will help future lenders, employers, etc., to see exactly what caused the problems that are in your credit file.  And, while it might not seem important to you now, having a note about your job loss due to the pandemic will definitely help to explain those late charges on your credit cards later on.
  • Find and Dispute Errors:  Errors in your credit file are far more common than most people realize and taking the time to review and remove negative, inaccurate information is vital to maintaining your credit file.  Common problems include incorrect name, address, phone numbers, accounts belonging to others, identity theft, data errors, and more.  Dispute each and every single issue that you find – identify, clarify, and submit backup documentation to substiantiate your claim, then as that it be corrected or removed.  It may take time, but it can and should be done!
  • Watch your Credit Score as closely as you do your bank account:  With so many free credit monitoring services available, there is really no excuse for not knowing what your score is and exactly what is impacting your score at any given time.  
  • Make your payments on time:  Once you get past your problems and get your income back on track, get your payments back on track as well.  Many people figure that there's no way they'll ever catch up or repair delinquencies, so they just ignore them without ever making the effort to get back on track.  That's the wrong approach – contact your creditors and work out a plan to get each and every account up to date.  You might even be able to negotiate the removal of those late payment notifications in return for catching up, but first you have to try.
  • Get your Credit Utilization Score down as soon as possible:  Since this one thing makes up a huge part of your credit score, getting it down below 30% is vital to improving your score.  (Get it under 7% and that puts you in league with those who have "very good" credit.  1%-3% puts you in league with those who have "exceptional" credit.)
  • Increase your Credit Limit:  Although this is not always the best route to take, opening a new credit card can decrease your credit utilization, and therefore, increase your credit score.  Just be sure that you don't make the mistake of overusing your new credit card and/or applying for too many new cards!

Remember, you're not alone in this situation.  Millions of people around the world have been negatively impacted by recent events, so your hard work to repair your credit will undoubtedly pay off in the future when lenders have to decide who among us is worthy of new credit.  

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Bankruptcy & Credit Counseling

Are you one of the millions of Americans now considering bankruptcy?  If so, in most instances, you'll need to complete pre-bankruptcy credit counseling before AND after filing bankruptcy.  Why are you required to complete it twice?  Unbelievably, the first one is to determine if you even need to file bankruptcy in the first place, or if there's another way that you can get the fresh start that bankruptcy provides without actually filing.  And the second one is understandably regarding your emergence from bankruptcy and the steps you'll need to take to keep your future financial life on track.  

But let's talk about the pre-filing credit counseling requirement before you even consider bankruptcy.  Since you'll be required to take this step anyway, you might want this to be your starting point.  Before you call the attorney and start the paperwork to file.  Pre-filing credit counseling might actually help you prevent filing at all because they'll help you to figure out if there are other options available.  Perhaps there are significant changes you can make to your household budget, or there's a debt management plan that you could enroll in, or you may qualify for a personal loan… their job is to help you find these options or, if you're better off doing so, they may even advise you that bankruptcy is the best option.

Since you're considering bankruptcy, and it's typically a requirement, you really have nothing to loose, so why not set up your credit counseling session first?  Not only will the counselor sit down with you and help you to prepare a workable budget, but he or she can actually help you figure out whether you need to file bankruptcy OR if you can avoid bankruptcy and possibly save your credit report from the long term damage a bankruptcy does.  

Whatever direction you eventually take, credit counseling is obviously a win-win situation, and one that you seriously need to consider before filing for bankruptcy. 

 

 

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Upside to the Pandemic?

In a highly unusual economic climate, a highly unusual thing is occurring in the United States… Credit card debt is actually declining during the current recession!  In fact, for the first time in years, total American credit card debt has now dropped below the $1 trillion mark.  So, why is this so important, you ask?

Actually, this decline in credit card debt indicates drastic changes in consumer behavior as the pandemic rages on around the world.  For example, with the shutdown of restaurants, bars, and other entertainment venues, Americans are definitely swiping that credit card a lot less!   Then, factor in the job losses, and what do you have?  Not only is the money not there to spend, but people are working extremely hard NOT to spend the money they do have (and not to rack up balances on credit cards, either).

Of course, all of this "declining debt" may soon change as the Federal Unemployment Insurance benefits expire later this week, and more people run out of money for day to day expenses.  That means the recent plunge in debt may be short lived, at least until another stimulus package is agreed upon.  

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