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CREDIT EDITIONWHAT IS CREDIT?

You need good credit, but what is credit – and what makes it good or bad? To keep your credit healthy you need to know how it works, how to keep track of it, and how you can manage it.

What is Credit?

Credit refers to borrowing: your ability to borrow and the amount you borrow. When it comes to loans (like credit cards, auto loans, and home loans), your credit is your reputation as a borrower. It tells lenders how likely you are to repay your loans, which helps them decide whether or not to approve your loan request and how much to charge.

Your credit is made up from information about your borrowing history. Most of the information comes from your credit reports.

What is a Credit Report?

Credit reports are a collection of information, including:

• Loans that you’ve used in the past, even if you’ve paid them off (generally the past seven years, although there are exceptions)• Loans that you’re currently using (including any unused lines of credit)• How much you’ve borrowed• Your required minimum monthly payments• Your payment history – have you made late payments, or are you always on-time?• Public records such as bankruptcy and foreclosure• Any loans that you have defaulted on and are in collections

Your credit report is the master document that’s behind your “credit.” Based on that information, lenders decide whether or not to offer you a loan. Continues on P.15

INSIDE THIS ISSUE

A EARN, LEARN, SAVE & INVEST FINANCIAL LITERACY PUBLICATION

Editorial P.2

UNDERSTANDING YOUR FICO CREDIT SCORE P. 3

4 LAWS THAT PROTECT YOUR CREDIT RIGHTS P.4

How to monitor your cred-it for free P. 5

11 Ways To Raise Your Credit Score, Fast P.6

Does Credit Repair Work? P.7

How to Order Your Free Credit Report P.8

Credit Reports and Scores P.9

How to Build Business Credit in 5 Steps P.10

BUSINESS DIRECTORY P.11-12

Your Credit Score: Good Credit vs. Bad Credit P.13

5 EASY WAYS TO BOOST YOUR CREDIT SCORE P.14

ORLANDO/KISSIMMEE, FL

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LOCAL | MONTHLY | JAN/FEB/MAR 2017 | VOL 19 | NO.20

JUSTIN PRITCHARD | CONTRIBUTOR

11310 South Orange Blossom Trail #244Orlando, Florida 32937888-320-9990

Email: [email protected]: www.financialliteracynews.com

Publisher: Future Investor Clubs of America, Inc.Editor: Frank ParksArt Director: Ryan ParksStaff Writer: Sandra PerkinsFreelance Writer: Ernest JohnsonFreelance Writer: Jose RamirezFreelance Writer: James RoanFreelance Writer: Richard GoldsteinFreelance Writer: Sue GraysonFreelance Writer: Conrad JacobsFreelance Writer: Maria Gonzales

By Sally Herigstad

If you’re serious about cleaning up your credit and prefer to hire out the task rather than do it yourself, you may decide to use the services of a credit repair company. That can be a positive step toward polishing up your credit history, provided you know the company you are dealing with is reputable.

A credit repair company is an organization that attempts to improve your credit history and score for you. They do this by disputing negative items on your credit history. They may also counsel you about how to make smart moves to improve your score. They may tell you to pay down certain cards, or to pay them down to a certain level, for example. You can do anything yourself that a credit repair company can do for you, of course. However, many people find it helpful to have a knowledgeable person working with them during the process.

Deciding to use a credit repair company is only the first step, however. You still have to choose one that will give you your money’s worth, and you’ll need to participate in the process. Good credit repair companies can do wonders – but only if you have realistic expectations and you work with them.

Years ago, credit repair companies had a sketchy reputation. The market included too many businesses that promised fast, easy results – for an upfront fee. Some of them were not that good at delivering after they made big promises. Others didn’t even try, and the worst of them simply took the fee and did nothing or disappeared.

“Over the past several years, the credit repair industry has made some real progress when it comes to weeding out the scammers,” says Marc Chase of My Credit Group. “Some credit repair companies do outshine the others.”

Realistic advertising promises. Guillermo Serafin, licensed real estate, insurance and mortgage broker and owner of Credit and Finance Resource Inc., says, “If anyone is promising you the world, run the other way. There is no such thing as an instant credit fix.”

Physical place of business. Having a real office doesn’t guarantee a business isn’t fly by night, but it helps.

A contract you understand and are comfortable with. The contract should describe the credit repair company’s commitment to you, plus your rights and expectations.

A detailed game plan. Some companies basically just dispute everything on your report. Not only is this something you could have done yourself, but according to Chase, it usu-ally works with older items with low-dollar amounts, which probably aren’t hurting your score much in the first place. Plus, many disputes over legitimate debts won’t disappear, but will land right back on your credit reports once the credit bureau determines the debt is genuine. Choose a company that also helps you settle debts if you are unable to meet your current repayment obligations.

Willingness to contact actual creditors. “Ask the company if they contact the actual col-lection companies, original creditors and the credit bureaus,” says Chase. This is import-ant because collection companies, original creditors, and the credit bureaus each follow different laws. They may get good results for one negative mark by contacting just the credit bureau, but it may take contact with the creditor or collection agency to take care of another. “Most credit repair companies never dispute with collectors because it’s more time-consuming to look up their contact information,” says Chase. “It’s much easier to

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CREDIT EDITION2

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Let’s face it: credit scores can be really confusing. You see advertisements on TV all the time indicating you have three scores and they all make a dif-ference in whether that auto loan or mortgage lender is going to give you the best deal.

In truth, you actually have more than three scores, because every credit bureau, every lender and every creditor can actually have their own formula used to calculate your risk as a borrower – which is what your score measures.

So how do you know what to pay attention to if you are trying to assess or improve your credit?

What is a FICO Credit Score?

FICO is the short way of saying Fair Isaac and Company. They are the originators of the idea of a credit score so lenders and creditors can assess the risk of lending you money or extending a new line of credit.

Basically, your credit score tells a lender how likely you are to pay back what you owe responsibly. A high score means you are very likely to pay back everything on time, while a low score indicates you are a high-risk debtor who may default.

Back in 1956 when Fair Isaac started calculating credit scores, they were the only one doing it. However, now you have the three main credit bureaus in the U.S.: Equifax, Ex-perian, and TransUnion. There are also other credit reporting agencies throughout the world and creditors themselves now have their own formulas to calculate risk for their specific type of lending. Each of these credit scores can be different in order to address that company or lender’s specific needs, but they are almost all based on FICO.

So why focus on FICO?Since all other scores are usually based at least somewhat on FICO, that means under-standing your FICO credit score means you understand how to improve your credit, in general. Steps you take to improve your FICO will also improve your credit scores with the three main bureaus, as well as other scores you may have out in the world. It creates one path forward in improving your credit.

How to maintain a strong FICO credit scoreYour FICO credit score ranges from 300 to 850 points. Fair Isaac uses the median credit score as a measure of what a good credit score is – according to Fair Isaac and Company a good FICO credit score is 723.

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CREDIT EDITION

UNDERSTANDING YOUR FICO CREDIT SCORE

4 CREDIT EDITION

In matters pertaining to credit, do you feel like it’s you against the world? Sometimes we all feel that way, but in reality, there are rules and regula-tions to help protect you against credit discrimination, abuse, or improp-er handling of your information. Consider these four important laws that help protect your credit rights.

Equal Credit Opportunity Act (ECOA) – Enacted in 1974, the ECOA is intended to keep credit equally available to all qualified applicants. It prevents creditors from discriminating against any credit applicant on the basis of religion, race, color, sex, national origin, age, marital status, or receipt of public assistance. The Consumer Financial Protection Bureau (CFPB) was given authority over ECOA by the 2010 Dodd-Frank legisla-tion.

If you feel your rights have been violated under the ECOA, contact the CFPB or your state Attorney General’s office to report the discrimination.

Fair Credit Billing Act (FCBA) – The FCBA applies to credit cards and similar open-ended credit sources, but not to installment payments like auto loans. It allows consumers to dispute erroneous charges and hold payments without any damage to credit reports. FCBA also covers credit card holders from liability in the case of fraudulent charges on their cards through data breaches or stolen credit card information.

However, to use the FCBA’s protection it is important to act quickly. You must report erroneous charges within sixty days after the bill containing the erroneous charge was mailed to you. Your complaint must be mailed directly to the card issuer. The card issuer must acknowledge receipt of your complaint within thirty days and resolve it within the next two bill-ing cycles. If your complaint is upheld and corrected, any accrued interest is also removed.

When the issue results from lost cards or stolen card information, dis-

putes can be phoned in and the sixty-day limit does not apply.

Fair Credit Reporting Act (FCRA) – Basic handling of your credit information is covered under the FCRA. Credit reporting agencies and all sources that collect and report your credit activities to the agencies are required by the FCRA to make sure that your information is fair, accurate, and secured. They must provide the information in your file upon re-quest, although they are not required to do so for free. However, you can check your credit score and read your credit report for free within min-utes using Credit Manager by MoneyTips.

When information in your credit file has been used to deny your credit application, the creditor must inform you of that fact and provide the contact information on the agency providing that information. This also applies to denials of insurance or employment.

Electronic Fund Transfer Act (EFTA) – The EFTA targets protection of financial transactions processed by electronic means. While it is targeted primarily at banking operations such as ATMs, debit cards, and direct deposits, it also applies to credit card transactions where electronic funds transfer features apply.

When you are faced with abuse of your credit, remember that these regulations have your back — but they cannot help you if you do not use them. Understand your credit rights so that when the time comes to put the power of these regulations to work for you, you know what to do.

4 LAWS THAT PROTECT YOUR CREDIT RIGHTSMONEYTIPS.COM | CONTRIBUTOR

HOW TO MONITOR YOUR CREDIT FOR FREE(MoneyWatch) Capital One’s (COF) has agreed to pay $210 million to settle charges that it pressured customers to buy often unnecessary credit-moni-toring services.

Millions of consumers have signed up for such services, paying about $60 to $180 per year. Providers of credit-monitoring tools claim they protect people from identity theft by watching for changes on your credit report and then sending alerts when changes are detected. In fact, however, that may create a false sense of security because some forms of ID theft may not appear on your credit report for a long time, if ever.

Indeed, some consumer advocates warn that credit-monitoring services are like an alarm that warns you long after the break-in has occurred.

Despite these drawbacks, demand for ID theft-protection and credit-monitoring services is growing. Credit reporting companies offer services such as Equifax Credit Watch, Experian ProtectMyID, and TransUnion Credit Monitoring, which monitor a subscriber’s credit report and sends messages when there are inquiries or changes to the report. Typically the cost of these services include a monthly subscription fee that covers daily credit report monitoring, sending alerts and providing fraud-resolution insurance.

But consumer watchdogs warn that these services can be costly and incomplete, as many only check activity on one credit bureau report, not all three. They also note that consumers can do for free what most of these services offer to do for a fee. The other side of the argument is that you can cut your own lawn, but many folks will pay for the convenience of having someone do it for them.

Critics of credit-monitoring tools acknowledge that these services may be worth the money for people who have been a victim of ID theft or who are at higher risk. That includes individuals who keep a lot of money in their banking accounts, check their bank activity infrequently, travel frequently, travel abroad, and who don’t check their own credit reports.

Of course, some people may already have ID theft insurance and not know it given that several insurance companies provide it as a standard or ad-ditional feature of their homeowner’s insurance policies. Credit card companies are also offering this as a part of their credit cards features. So check before you buy.

ID theft prevention

Here are a few things you can do to help detect identity theft and reduce the chances that your personal account information can be used fraudulently:

- Review all activity on your credit card and bank statements and dispute or report un-authorized activity as soon as it’s detected.

- Review your credit reports regularly, looking for changes and any incorrect account information.

- Ask the thee credit bureaus to place a free fraud alert on your credit report file. You’ll need to renew this alert every 90 days; it warns lenders that they should take extra steps to confirm your ID before issuing new credit.

- Put a “lock” on your credit report file by freezing your credit report. A credit file freeze, which costs about $10 per file, prevents new lenders from accessing your credit report. The catch is that you’ll be prevented from opening a new credit account unless you temporarily unfreeze your account.

No matter how many precautions you take, however, the reality is that it’s almost impos-sible to prevent ID theft, particularly when a business that has your personal informa-tion is compromised from within. The single best defense against serious harm from ID theft is to frequently review your credit report information for signs of incorrect infor-mation and accounts that you did not open.

Early detection and immediate action is the only way to limit and stop the damage that can be done when your personal information is used fraudulently. The bottom line: You have to take as much interest in your credit report information as the bad guys do.

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CREDIT EDITION

RAY MARTIN | CONTRIBUTOR

11 WAYS TO RAISE YOUR CREDIT SCORE, FAST

1. Dispute errors. Mistakes happen. You can dispute errors online through Equifax, Experian and TransUnion. After you’ve fixed any foul-ups, you might try to…

2. Negotiate. You can’t deny that you stopped paying a credit card bill when you were unemployed last year. But you can ask creditors to “erase” that debt or any account that went to collection. Write a letter offering to pay the remaining balance if the creditor will then report the account as “paid as agreed” or maybe even remove it altogether. (Note: Get the creditor to agree in writing before you make the payment.)

You might also be able to ask for a “good-will adjustment.” Suppose you were a pretty good Visa V +0.41% customer until that period of unemploy-ment, when you made a late payment or two – which now show up on your credit report. Write a letter to Visa emphasizing your previous good histo-ry and ask that the oopsies be removed from the credit report. It could happen. And as long as you’re reading the report, you need to…

3. Check your limits. Make sure your reported credit limits are current vs. lower than they actually are. You don’t want it to look as though you’re max-ing out the plastic each month. If the card issuer forgot to mention your newly bumped-up credit limit, request that this be done.

4. Get a credit card. Having one or two pieces of plastic will do good things to your score – if you don’t charge too much and if you pay your bills on time. In other words, be a responsible user of credit.

Can’t get a traditional card? Try for a secured credit card, taking care to choose one that reports to all three major credit bureaus. And if you can’t get a secured card, you might ask to…

5. Become an authorized user. This means convincing a relative or friend to be added to his or her existing credit card account. If you’ve had a check-ered financial history, don’t be surprised if you hear the word “no” a lot. But you might luck out, especially if you’re a young person who has no history of poor credit use.

Offer to put an agreement in writing stating how much you can spend and how you will get your share of the bill to the cardholder. Then “do your part and use the card responsibly,” says Beverly Harzog, author of Confessions of a Credit Junkie. In other words, don’t buy more than you can afford and don’t leave your co-signer hanging when the bill is due. The point is to learn to use credit responsibly.

6. Under-use your cards. Yes, we did just tell you to get credit by any means possible. But don’t whip out the plastic to pay for everything. The “credit utilization ratio” should be no more than 30% and ideally even less. Harzog says that a 10% credit utilization ratio will “maximize this part of your FICO score.”

For example, suppose your Mastercard has a $1,500 limit and you routinely charge a grand a month. It doesn’t matter if you pay it all off before it’s due. What matters is the credit bureaus think “Curtis is using two-thirds of his credit! What a spendthrift!” And if you’re a cash-free kind of guy? Then try to…

7. Raise your credit limit. Ask your creditors to increase your limit, i.e. making that Mas-tercard good for up to $3,000. Be careful with this one, though: It works only if you can trust yourself not to increase your spending habits accordingly. Otherwise you’ll be right back to using 66% of your credit each month and how will that look?

8. Don’t close any cards. Canceling a credit card will cause your available credit to drop, which doesn’t look good to a bureau. One way to keep a card active is to use it for a re-curring charge such as a utility bill. There’s room for that in your budget, right?

9. Mix it up. Using a different kind of credit can make for a modest boost to your score. For example, you might take out a small personal loan from the credit union or buy a piece of furniture or appliance on installment (but only if you’re 100% sure you can and will meet the payment schedule).

10. Pay your bills on time. Seriously. Your payment history – including the ones you pay late or skip altogether – makes up a whopping 35% of your FICO score. If you’re absent-minded or merely overwhelmed (Hi there, parents of young children!), then for heaven’s sake, automate your payments. Even better than paying on time is to…

11. Pay your bills twice a month. Using too much of your credit limit at any given mo-ment doesn’t look good. Suppose your limit is $3,000 and a month’s worth of havoc (car repair, doctor bills, plane ticket for kid to get to college) means you’ve charged up $2,900. Sure, you plan to pay in full by the 18th of the month – but until then it looks like you’re maxing out yet another card.

Instead, make one payment just before the statement closing date and second one right before the due date. The first will likely reduce the

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CURTIS ARNOLD | CONTRIBUTOR

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DOES CREDIT REPAIR WORK?What Exactly Is Credit Repair?

You can DIY your credit repair or hire a credit repair company or law firm to work on your behalf to fix your credit. To get to the heart of what credit repair is and how credit repair companies operate, we went to Randy Padawer, Con-sumer Education Specialist with Lexington Law, which represents consumers who want to repair their credit.

“Credit repair leverages your legal right to three standards: Credit reports must be 100% accurate, entirely fair, and fully substantiated,” Padawer said. “Too many lesser credit repair companies skip over those last two standards — which involve communicating with your creditors — in favor of depending upon simple credit bureau disputes by themselves.”

Here’s a good example of when a reputable credit repair service can help you do something you may not be able to accomplish yourself. If you have a col-lection account that’s been sold to a few different debt collectors, it may appear on your credit report multiple times. That information is accurate, but having that one debt dinging your credit score multiple times may not meet the “fair” standard Padawer mentioned.

How Does Credit Repair Work?

A recent Federal Trade Commission study found that one in five consumers have an error on at least one of their credit reports. If you have items on your credit report that don’t meet the three standards Padawer mentioned, then you may want to consider credit repair — either DIY or via hiring a professional.

A good credit repair company will first pull your credit reports from each of the three major credit reporting agencies to pinpoint your credit issues. Why all three? Because each credit reporting agency has its own “data furnishers” (aka lenders, credit card companies, debt collectors, etc.) who re report your credit information to them. And there may be errors that appear on one of your credit reports, but don’t appear on the others.

CREDIT EDITION

KALI GELDIS | CONTRIBUTOROnce those errors have been identified, you’ll then give a credit repair com-pany any supporting documentation you might have or need. For example, if there’s a bill on your credit report that your husband was actually responsible for under your divorce decree, you can use that document to prove it shouldn’t be impacting you.

In some cases it might be difficult to determine what to include as far as sup-porting documentation goes — that’s another way a credit repair company can help you. For example, if you’re a victim of identity theft and a fraudulent ac-count is appearing on your credit report, it can be tough to prove it isn’t yours since you naturally don’t have any documents relating to the account.

When the bureaus and data furnishers receive the dispute and supporting in-formation, they will then work with the credit repair company to determine if the item should be removed from your credit report.

Fair Credit Reporting Act, but it isn’t the only law on your side when it comes to credit repair.

“A good credit repair company will scrub questionable credit report items against other laws — like the Fair Credit Billing Act, which regulates original creditors; the Fair Debt Collection Practices Act, which oversees collection agencies; and others that address medical illness, military service, student sta-tus and other life events,” Padawer said.

How Long Does Credit Repair Take?

Getting negative, inaccurate information off of your credit reports is one of the fastest ways to see an improvement in your scores. Since credit bureaus have to respond and resolve a dispute within 30 days (there are a few exceptions that may extend this to 45 days), it’s a short timeline that can help consumers who want to buy a house, get a new car or open up a new credit card soon and don’t have the time to wait to build good credit in other ways.

HOW TO ORDER YOUR FREE CREDIT REPORTOne of the best ways to protect yourself from identity theft is to monitor your credit history. Now you can do that for free. Thanks to a new federal law, consumers can get one free credit report a year from each of the three national credit bureaus. Those bureaus are Equifax, Experian, and TransUnion.1 You can also get your reports for free from “specialty” credit bureaus. These companies prepare reports on your employment, insurance claims, rental and other histories.

Checking your credit reports at least once a year is a good way to discover identity theft. And the sooner identity theft is discovered, the easier it is to clear up. You can also identify errors in your credit reports that could be raising your cost of credit.

Nationwide Consumer Reporting Agencies

The three nationwide consumer credit reporting agencies, also called credit bureaus, are Equifax, Experian and TransUnion. They compile credit his-tories on consumers. Your credit history contains information from financial institutions, utilities, landlords, insurers, and others. The credit bureaus provide information on you to potential credit granters, insurers, landlords, and employers. You have the right to get a free copy of your credit history in several situations:

1. If a company denies you credit or makes another adverse decision based on your credit history;2. If you’re unemployed;3. If you’re on welfare; and4. If your report is inaccurate because of fraud.

You also have the right to a free copy of your report from each of the credit bureaus every year.

How to Order Your Free Annual Reports from Equifax, Experian and TransUnionYou can order your free annual credit reports through a toll-free phone number, online, or by mailing the Order Form at the end of this Information Sheet.

1-877-322-8228https://www.annualcreditreport.com/cra/index.jspAnnual Credit Report Request ServiceP. O. Box 105281Atlanta, GA 30348-5281

You have the option of requesting all three reports at once or staggering them. You could create a no-cost version of a credit-monitoring service. Just order a free report from one credit bureau, then four months later from another, and four months after that from the third bureau. That approach won’t give you a complete picture at any one time. Not all cred-itors provide information to all the bureaus. Monitoring services from the credit bureaus cost from about $40 to over $100 per year.

How to Review Your Credit Reports

To check your reports for errors or possible signs of identity theft, look especially at three areas.

Look in the Personal Information or Personal Data section. Look for addresses where you’ve never lived. Make sure your name and any variations of it, your Social Security num-ber, and your employers are correctLook in the Accounts sections. Look for any accounts you didn’t open. Look for balances on your legitimate accounts that are higher than you expect.

Look for Inquiries or Requests for Your Credit History that you didn’t make. There are two types of inquiries. “Regular” or “hard” inquiries are the ones that result when you apply for credit or when an account is transferred to a collection agency. This is the kind of inquiry you should check as possible identity theft or error. The other type, “promotional” or “soft” inquiries, would not be an indication of problems. This type includes pre-approved credit offers, checks for employment purposes, account monitoring by your existing creditors, and your own requests for your report. You can view sample credit reports, with the different sections explained, on the Web sites of the three credit bureaus: experian.com, transunion.com, equifax.com/home/en_us.

How to Correct Errors in Your Credit ReportIf you see anything you believe is incorrect, contact the credit bureau immediately. You can call the telephone number on the report to speak with someone at the credit bureau.

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Credit reports contain information about your bill payment history, loans, current debt, and other financial information. They show where you work and live and whether you’ve been sued, arrested, or filed for bankruptcy.

Credit reports help lenders decide whether or not to extend you credit or approve a loan, and determine what interest rate they will charge you. Prospec-tive employers, insurers, and rental property owners may also look at your credit report.

It’s important to check your credit report regularly to ensure that your personal information and financial accounts are being accurately reported and that no fraudulent accounts have been opened in your name. If you find errors on your credit report, take steps to have them corrected.

Free Credit Reports You are entitled to a free credit report from each of the three credit reporting agencies (Equifax, Experian, and TransUnion) once every 12 months. You can request all three reports at once, or space them out throughout the year. Learn about other situations in which you can request a free credit report.

Request your free credit report: Online: Visit AnnualCreditReport.com

By Phone: Call 1-877-322-8228. Deaf and hard of hearing consumers can access the TTY service by calling 711 and referring the Relay Operator to 1-800-821-7232.

By Mail: Complete the Annual Credit Report Request Form (PDF, Download Adobe Reader) and mail it to:

Annual Credit Report Request ServicePO Box 105281Atlanta, GA 30348-5281

If your request for a free credit report is denied: Contact the credit reporting agency (CRA) directly to try and resolve the issue. The CRA should inform you of the reason they denied your request and explain what to do next. Often, you will only need to provide information that was missing or incorrect on your application for a free credit report.

If you are unable to resolve your dispute with the CRA, contact the Consumer Financial Protection Bureau (CFPB).

Credit Score A credit score is a number that rates your credit risk at one point in time. It can help creditors determine whether to give you credit, decide the terms you are offered, or the rate you will pay for the loan. Having a high score can benefit you in many ways, including making it easier for you to obtain a loan, rent an apartment, and lower your insurance rate.

The information in your credit report is used to calculate your credit score. That’s why it’s important to make sure your credit report is accurate. You can have multiple credit scores, created by different companies or lenders that use their own credit scoring system.

Your free annual credit report does not include your credit score, but it’s available for a fee. When you buy your score, you often get information on how you can improve it.

Credit Reporting Agencies

A credit reporting agency (CRA) is a company that collects information about where you live and work, how you pay your bills, whether or not you have been sued, arrested, or filed for bankruptcy. All of this information is combined together in a credit report. A CRA will then sell your credit report to creditors, employers, insurers, and others. These companies will use these reports to make decisions about extending credit, jobs, and insurance policies to you.

You are entitled to order (every 12 months) a free copy of your credit report from each of the major credit reporting agencies (Equifax, Experian, and TransUnion) through AnnualCreditReport.com. This website is the only one that is government authorized to provide you with free copies of your credit report.

You can also contact the credit agencies directly if you need to dispute information in your report, place a fraud alert or security freeze on your credit file, or have other questions. Equifax or by phone at 1-866-349-5191. Experian or by phone at 1-888-397-3742. TransUnion or by phone at 1-800-916-8800

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CREDIT EDITION

CREDIT REPORTS & SCORESUSA.GOV | CONTRIBUTOR

If you’ve been denied a small-business loan, it might be because you have bad personal or business credit. Forty-five percent of small-business borrowers who get a “no” from creditors are turned down because of their credit scores, according to the Federal Reserve Banks of New York, Atlanta, Cleveland and Philadelphia. Borrowers with bad credit might also have higher interest rates, higher insurance premiums and less favorable payment terms with suppliers.

A strong business credit profile doesn’t just help you secure a loan; it’s also important for attracting new business. Unlike with personal credit reports, anyone — including potential customers, partners and suppliers — can look at your business credit report. Those parties look at your report as an em-ployer would an individual’s resume, says Amber Colley, director of sales and partnerships at Dun & Bradstreet, a business credit bureau.

“It’s not just about finances,” Colley says. “It’s about your credibility.”

You can get a small-business loan despite bad personal credit. But if you take steps first to build your business credit, you’ll qualify for lower interest rates, cutting the total cost of your loan. Here are five steps to build your business credit.

How to build business credit

1. KEEP YOUR INFORMATION CURRENT WITH ALL THREE CREDIT BUREAUS.

There are several credit bureaus that collect data and create business credit scores, including Dun & Bradstreet, Experian and Equifax. But compared with personal credit scores, which follow the standards set by Fair Isaac Corp. to produce a standard FICO score, business credit scores are much less streamlined. Each business credit bureau has a different formula for calculating scores, and different lenders report different types of data, says Gavin Harding, a senior business consultant at Experian.

Since you never know which credit bureau your vendors, creditors or potential customers will check, it’s smart to maintain all three. Dun & Bradstreet, for example, allows business owners to update basic business information (such as years in operation or number of employees) and upload financial statements. The more complete your profile, the better, Colley says. For more on how to monitor your score, check out our business credit score guide.

2. ESTABLISH TRADE LINES WITH YOUR SUPPLIERS.

If you buy supplies, ingredients or other materials from third-party vendors, those purchases could help build your business credit. Many suppliers extend trade credit, which means they allow you to pay several days or weeks after you receive the inventory. If you have this type of accounts-payable relationship, ask your supplier to report your payments to a business credit bureau. Your business credit score will get a boost as long as you stick to the terms of the trade agreement.

You need at least three trade lines to get a Dun & Bradstreet Paydex score, which measures past payment history. Even if you don’t work with a lot of suppliers, Colley suggests setting up trade lines with any small vendor, such as your water or office supplies distributor. If those vendors don’t report to a credit bureau, you can list them as a trade reference on your account, and Dun & Bradstreet will follow up to collect your trade data, Colley says.

3. MAKE PAYMENTS TO CREDITORS ON TIME OR EARLY.

Although each credit bureau uses slightly different methods of crunching business credit scores, all of them consider your history of paying creditors. To ensure a good score, make sure your payments are on time or, even better, early. Dun & Bradstreet only assigns perfect scores to those who pay early.

Nerd note: A long credit history tends to weigh favorably, so the sooner you can start establishing business credit, the better. Also, credit utilization is a factor in business credit scores — as it is with personal credit scores. So use your cards and lines of credit, but don’t max them out. Limit your spending to 20% to 30% of your credit limit.

4. BORROW FROM LENDERS THAT REPORT TO CREDIT BUREAUS.

Small-business loans can actually boost your business credit if you make all your payments on time and the lender reports to a business credit bureau. But not all lenders do. So if you’re intent on building business credit, ask the lender whether they report before you take out a small-business loan.

Banks typically report to credit bureaus, but if you have bad credit, you probably won’t qualify for a bank loan. Many online small-business lenders — which are more willing to lend to bad-credit borrowers — also report, including OnDeck, Lending Club, Funding Circle, Fundation, Kabbage and BlueVine. However, lenders including SmartBiz, Lighter Capital, Fundbox and merchant cash advance companies don’t report.

5. KEEP YOUR PUBLIC RECORDS CLEAN.

In addition to detailing your business’s history of paying creditors, your business credit report will have any public records filed in your business’s name, including bankruptcies, judgments and liens. A judgment is a court ruling; if the ruling is against you in a debt collection lawsuit, it will have a negative affect on your credit score. A lien is a creditor’s legal right to seize your property unless you pay an owed amount, such as an outstanding small-business loan or unpaid taxes.

These negative marks on your business credit report can haunt you. Bankruptcies, for example, stay on your Experian credit score for almost 10 years; tax liens, judgments and collections remain for almost seven years.

The bottom line

Building good business credit can help you get lower-interest small-business loans, business credit cards and better terms from your suppliers. It may even help attract new customers, since anyone can check your business’s credit score as a way to gauge your trustworthiness and responsibility. Your business credit score will likely vary by credit bureau because each bureau calculates scores differently. But generally, the best way to build business credit is to update your business information with business credit bureaus, establish trade lines, borrow from lenders that report to credit bureaus, and


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CREDIT EDITIONBUSINESS DIRECTORY

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CREDIT EDITIONBUSINESS DIRECTORY CONT.

YOUR CREDIT SCORE: GOOD CREDIT VS. BAD CREDIT

It can be difficult to pay for everything in cash. Buying a home and paying for college, for example, are hefty investments that will likely require you to take on debt by borrowing money now and paying it back later.

Your borrowing history—the type of debt you’ve acquired and how you’ve paid it back over time—is listed in your credit report and impacts your credit score, but not all debt is created equal. By understanding the distinction of good debt vs. bad debt, you will be on your way to using credit responsibly and improving your creditworthiness over time.

What is good debt?

Good debt is often considered to be an investment in something that creates value. A mortgage or student loan, for example, can be considered good debt—especially if your home’s market value increases over time or your college education helps you land a good job that pays the bills.

Generally, any debt can be classified as good debt as long as you are able to pay it back on time each month, making at least the minimum payment. Your payment history is the largest factor that influences your credit score—ac-counting for about 35 percent of your score. As a result,

consistently keeping up with your payments can help you raise your credit score over time.

This means you might have to make some tough decisions about how much debt to take on and where to most economically use it. Taking out a home equity line of credit to add another bathroom to your house, for example, may be a better investment than running up your credit card debt to pay for fancy dinners and lavish vacations.

What is bad debt?

In general, bad debt is any debt you take on to fund a life-style you can’t afford, and it usually causes you to sacrifice long-term financial health for short-term gratification. Any debt can quickly become bad debt if you overextend your-self or fall behind on your payments.

You can quickly rack up bad debt if you are using a high-interest credit card and not paying the monthly bal-ance in full or if you take out a loan with monthly pay-ments you can’t meet. If are able to comfortably afford the monthly payments on a $15,000 auto loan, for example, be cautious of overextending yourself by taking out a larger loan.

Debt that uses up too much of your available credit can also be considered bad debt. About 30 percent of your credit score is determined by the amount you owe on your credit cards and loans or your ratio of debt to available credit.

Keeping your ratio of debt to available credit as low as possible can usually reflect positively on your credit history and credit score. If you carry a balance of more than 30 percent of your credit limit, lenders may consider it excessive debt and view you less favorably.

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reports to a business credit bureau. But not all lenders do. So if you’re intent on building business credit, ask the lender whether they report before you take out a small-business loan.

Banks typically report to credit bureaus, but if you have bad credit, you probably won’t qualify for a bank loan. Many online small-business lenders — which are more willing to lend to bad-credit borrowers — also report, including OnDeck, Lending Club, Funding Circle, Fundation, Kabbage and BlueVine. However, lenders including SmartBiz, Lighter Capital, Fundbox and merchant cash advance companies don’t report.

5. KEEP YOUR PUBLIC RECORDS CLEAN.

In addition to detailing your business’s history of paying creditors, your business credit report will have any public records filed in your business’s name, including bankruptcies, judgments and liens. A judgment is a court ruling; if the ruling is against you in a debt collection lawsuit, it will have a negative affect on your credit score. A lien is a creditor’s legal right to seize your property unless you pay an owed amount, such as an out-standing small-business loan or unpaid taxes.

These negative marks on your business credit report can haunt you. Bankruptcies, for example, stay on your Experian credit score for almost 10 years; tax liens, judgments and collections remain for almost seven years.

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EQUIFAX | CONTRIBUTOR

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To get the best interest rates on mortgages, most lenders will require a FICO score above 740. There are a lot of myths that can distract you from a bet-ter credit score. If you want to increase your score quickly, focus on these five steps.1. Bring all open accounts current

The single most important part of your credit score is your payment history. Missed payments can do the most damage, especially if the payment becomes more than 30 days late. Make sure that you bring any open account current. This might sound obvious, but people with items in collections often make suboptimal choices.

If you have debt that has been written off by your lender and sold to a collections agency, a “collection item” will likely be registered on your credit re-port. However, once the collection item hits your report, the damage is done. On FICO 8 and earlier scores, paying off the collection item actually will not help your score. According to FICO, “as far as your FICO score is concerned, two things are considered; has a collections appeared on your credit report, and when it was reported. So whether or not you pay your collections off is really a personal decision.”

But here is the problem: collection agencies tend to scream loudly. I have often spoken with people who have let a credit card go 30 days past due so that they could have enough money to pay off an old collections item. That strategy is tempting, because paying the collection agency feels like the right thing to do first. However, if you don’t have enough money to settle an old debt and keep an open account current at the same time, you should prioritize keeping the open account current.

There is one other benefit to this strategy: old debt usually gets cheaper to settle as it ages. In general, the longer you wait to settle debt, the better the deal you can get. Your first priority is to keep all of your open accounts current. If you still have enough money after those payments, you certainly can (and probably should) settle an old collection item.

2. Pay down credit card debt

FICO tends to split debt into two categories: good debt and bad debt. Good debt is used to invest in assets. For example, a mortgage is an investment in a (hopefully) appreciat-ing home. Student loans are an investment in education and future earnings. That is why mortgages and student loans tend to be treated as “good debt.”

Credit card debt is considered “bad debt.” Credit Card debt of $10,000 could do a lot more damage to your credit score than $50,000 of student loan debt. Credit scores usual-ly look at:

How much credit card debt do you have in total? The higher the absolute number, the bigger the risk. Credit card debt is defined as your statement balance – even if you pay off your statement balance in full every month.What percentage of your available credit do you use? This is also called utilization. If you have a $100 credit limit and a $10 balance, your utilization would be 10%. People with the best scores have utilization below 10%.You should have a plan to reduce your total credit card debt and your overall utilization. One way to pay down debt faster is to use a 0% balance transfer offer. Your existing cred-it card company might have already sent you an offer in the mail. Or you can shop online for the best balance transfers at websites like MagnifyMoney or NerdWallet.

Another option is to use a personal loan to pay off your credit card debt. By paying off your credit card debt with a loan, you could get two benefits. First, you could get a lower interest rate which would help you get out of debt faster. Second, by paying off your cred-it cards you would reduce your utilization and credit card debt (even though it reappears as loan debt). At LendingClub, 75% of borrowers who used a consolidation loan had an increase of 20 points on their score within three months.

With a balance transfer or a personal loan, there are a few warnings. First, when you apply for either a loan or a new balance transfer credit card, you could have a short-term hit to your credit score because of a credit inquiry. However, if you use the new loan or balance transfer to pay down your debt more quickly, your score should more than recover as your total debt reduces. The biggest risk is that you don’t solve the problem that got you into debt in the first place and go deeper. When you complete a balance transfer, your monthly payment will go down during the promotional period. If you just keep spending, you could end up in more debt. Balance transfers and personal loans are only great options if you use the promotional period to pay down debt aggressively.

3. Make sure your credit report has good news every month

You should make sure your credit report has good news every month, even if your report is already filled with a lot of bad news. If you have a very bad credit score and want to rebuild, consider getting a secured credit card. And when you get the secured credit card, make at least one small purchase on your card each month. Pay your statement balance on time and in full each month. That on-time payment is a piece of “good news.”

Bad news goes away with time. But if you want a good credit score, you need good news on your report each month.

4. Check for errors and fraud regularly

You should look at your full credit report – not just your credit score – regularly. Visit AnnualCreditReport.com for your free annual report every month. You can sign up for free credit monitoring from sites like CreditKarma. And make sure you dispute your credit report if you find incorrect information.

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15 CREDIT EDITION

Instead, a computer program goes through the information and creates a credit score.

A high score means you’re more likely to get approved for a loan at attractive rates.

When somebody wants to see your credit report or get your credit score, they request it from a credit bureau (also known as credit reporting agencies). Under federal law, you are also allowed to view your credit reports for free at least once per year.

What is Credit Used For?

Credit was originally used for lending decisions, but credit scores and reports show up in other areas of your life as well. Consumers and lawmakers constantly watch what credit is used for, and debate about the fairness of credit scoring and the expanding use of those scores.

Borrowing money: this is the most common use of credit scores. Potential lenders want to know if you’re likely to repay your loans on time. Since they don’t know you per-sonally, they try to make a prediction based on your previ-ous loan experiences. A loan offered with no credit check is generally expensive.

Insurance coverage: insurers check your credit to determine whether or not to cover you, and at what rates. They use insurance scores that are slightly different from standard lending scores.

Employment: some employers check your credit, although you need to give them permission to do so. Presumably, they’re trying to make a judgment about how responsible you are based on your financial history. In some jobs, the link makes sense (they want to avoid situations where you

might be tempted by bribes) while in other jobs the link is less clear.

Utilities: to get services such as electricity or water, you might need to get a credit check. If that’s not possible (because you have not yet built up your credit) or you have bad credit, service providers often demand a larger security deposit.

Renting: similar to utility companies, your next landlord might ask to pull your credit. Depending on the rental market, your credit could prevent you from renting or lead to a higher deposit.

There is a lot of confusion around what is credit-related information. The most import-ant information used in a credit decision is information from your credit reports and details that you include in an application. For example, your income is not included in your credit report or score, but lenders need to know whether or not you can afford to repay (by calculating a debt to income ratio, for example) – so they ask about income on the application.

How is Credit Useful for Consumers?Credit can be helpful or harmful to consumers. To see the pros and cons, go back to the broader definition of credit: the ability to borrow.

Borrowing makes it possible to buy expensive things. If you wanted to buy a house, you might need to set aside hundreds of thousands of dollars in a savings account, and that’s not feasible for most people. A mortgage loan makes it possible to own a home, control your living environment, and build equity in the home (if you’re lucky, the home’s value will increase as well).

Auto loans make it possible to get a safe and reliable means of transportation. Student loans make it possible to afford higher education, which often leads to higher lifetime earnings and a better standard of living.

With credit, consumers can pay for expensive things with small payments. Unfortunate-ly, temptation (and sometimes just bad luck) can cause problems. Once you borrow, you need to repay. If you can’t afford the payments for whatever reason, your credit will suffer and you’ll face high expenses (late fees, legal costs, and so on). Tempting “0% interest” offers can end up being surprisingly expensive.

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5. Keep your oldest accounts open

It is in your interest to keep your credit cards open. The more available credit you have, the lower your utilization. In addition, keeping old accounts open helps keep a long credit history on your report. If you have a card that you no longer use and it charges a fee, you might have options. Call the credit card company and see if you can transfer your card to a no-fee version. Many credit card issuers will do that for you, so that you can keep the credit history without the fee.

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