Most of the companies out there have NOT kept up with the changes in the credit reporting industry. For example...
Almost everyone can tell you how to get an 800 FICO score 7 to 10 years from now. Some people can even teach you to fix your FICO score in 2 to 5 years. But what if you're a business owner where the name of the game is to be able to build extensive lines of credit in the name of your business as quickly as possible?
Leaves those offering "Cut up all your credit cards and pay off all your debts" advisors slack-jawed and drooling. They simply haven't a clue, an they represent 99% of the advice you're going to get.
If your goal is business credit, and/or the ability able to walk into a bank and borrow a million dollars on your signature- or better yet- nothing but a handshake, your FICO score will only take you so far. FICO is but one component of the overall picture if you're re a credit builder.
Therefore, EVERYTHING you think you know about good credit mgiht be useful if you're the typical, undisciplined consumer, but way wrong if you're a business-builder.
FIX IT
If you want to STOP BAD CREDIT and put yourself on the ROAD TO GOOD CREDIT, you need to remember the Three Magic Words for Credit Repair (Say it like Hillary Clinton now): I DON'T RECALL.
Contact the credit bureau- especially on old lates but DO NOT do ANYTHING to confirm or deny the remark. For old, closed accounts simply state, "I do not recall being 30 days late on my Discover Account in August 2003. Will you please look into it? If you cannot verify this information in 30 days, please remove it." They will likely not even research this. They'll just remove it. (Hey, they're just employees doing a job- they don't want to have to work. I'm not telling you to lie, so don't anybody get off on a tangent and miss the point: So you remember- tell the truth. "I noticed that my report says I was 30 days late on my Discover acct back in August 2003. It's not like me to be late. Will you please look into it..." It's true: you noticed it, and it's not like you to be late- is it? OK then. Remember, you're innocent until proven guilty- it is not incumbent upon you to admit fault. It's their job to document it- if they can't then don't make it your problem.
INVEST in credit repair. Don't cheap out and wait for that Government mandated "freebie" blended score thingy. Get individual reports- reports from each of the individual credit bureaus. When you do, it's free to handle much of this on line. If you're just that cheap- you may be entitled to a free credit report direct from the bureaus under at least one circumstance. You may know that identity theft is the number one non-violent crime in the country. It's more likely than any other non-violent crime to happen to you. Given that identity theft is so prevailent, do you believe you may be a victim of identity theft? (Are you worried, yet?) If so, the credit bureaus must, by law, send you a free copy of your credit report.
Here's how to contact The BIG Three
Equifax 1-800-685-1111
PO Box 740241
Atlanta, GA 30374-0241
www.equifax.com
Experian 1-888-397-3742
PO Box 2104
Allen, TX 75013
www.experian.com
Trans Union
PO Box 1000
Chester, PA 19021
www.tuc.com
The FIVE components of a credit decsion:
Character: Probably the most important that you have control over. Your FICO score is a part of Character- but not all. Other examples include documented paid private notes, and letters of recommendation, as well as other factors like your standing in the community. There are ways to defend your character as well. For example, to defend against a few minor dings in your credit report- you might want to walk in armed with the credit report of your lender? How are THEY doing? What's their track record? Debt ratio? etc. (If you're tactful, this can be extremely effective. Knowledge born of research gets respect).
Capacity: Capacity is your ability to repay the loan- it's generally your income. Lenders like you more the better your capacity to repay. One way to enhance capacity is to explain any expected future income, or increase in income.
Collateral: Specific asset used to securitize a loan. To enhance Collateral- you could offer cross collateralization- like a "blanket" mortgage that covers more than one property.
Capital: How much are you worth? The loan may not be secured per se, but the lender may want to know there's something behind you.
Conditions: Conditions are generally out of your control. Conditions could be the market at large, or it could just be the conditions of a particular lender. A guest of the Windy City Round Table got a $1M loan to start a business back in 1973 when a million bucks was real money. When they made the last payment in 1980 something- the loan officer that made it was still there. He said, "We never really expected you to last more than a year." Really? "Yes, we had two weeks to loan that sum and you were our chance to do it" Amazing, isn't it? You can "enhance" conditions through intelligence. If you have first hand knowledge of the lender, you may know something that will help you, banking and lending journals and trade publications are a great source.
USE IT OR LOSE IT
This is the one that will absolutely kill you if you're of the "pay off all your debt and close the accounts" mindset. If you don't USE credit, you're going to LOSE credit. Idle accounts may result in your creditors arbitrarily lowering your limits, or even closing the account. The optimum use of credit for credit building is between 30% and 60% of each available line. Under 30%- think again. Creditor may reduce credit line, or even revoke it altogether. Between 60% and 75% is not bad, but it is not in the credit building range. 75% to 100% is a giant red flag and will likely be detrimental to your FICO score as well.
What is that SUPER-SECRET FICO FORMULA anyway?
Well it is a proprietary algorythm but there are some general guidelines. They can vary from creditor to creditor, but it helps if you know them generally:
Your Payment History: 35% Goes to Character
Your Credit Use: 30% Use it or Lose it
Length of Credit Hist: 15% Closing that old acct. could shorten it!
Your New Credit: 10% To many new accts? Not enough?
Types of Credit: 10% The more the merrier- car, house, cc's
Credit Leveraging- or, When Rate Doesn't Matter:
You get a credit card, or cards with a nice line of credit. People bring you their deals. You qualify them and their deals. They pay three times the min. payment for three months, and make a final balloon payment at the end. This allows you to build credit at someone else’s expense. You make an aggreement to loan the money secured, you get points, and you set the rate above what you have to pay by say…3%. This exact repayment plan gives you AAA credit that you get paid to build.
Three Banks, Three Months, Three A Credit
Here's a great strategy Donna gave us that uses the very definition of AAA credit to give yourself better credit. The amount used in the example was $3,000. You could use $1,000, or $10,000 just as easily for slower, or faster results depending on your goals, and what's available to you.
Walk in to Bank Number One and open A savings account, or short term CD at Bank Number One with your $3,000. Wait four or five days. Walk back into bank Bank Number One and tell them you have a short term situation and you'd like a loan for 1 year secured by your deposit at their bank. They will make you a 12 month 100% secured loan at 5% interest-only with a balloon at the end.
Walk into Bank Number Two and make a $3,000 deposit. Four or five days later, do the same thing you did at Bank Number One.
Go to Bank Number Three and deposit $3,000. Do the same thing. Now, you'll proceed to make three times the min. payment at Bank Number One, then Bank Number Two, Then Bank Number Three and you'll repeat this until you've made three tripple payments on each loan. The next payment you make on each loan will be the full amount of the loan. You have now fulfilled the precise definition of AAA Credit, and the next time you walk into those banks- you'll likely get an unsecured or signature loan. Pretty neat, huh?
These are my notes from a talk that Donna gave at WCRT awhile back before the book was ready. That's the extent of my notes. I hope this is beneficial to all who read it. If you have comments, critiques, suggestions, or testimonials about how well any of this has worked for you- please feel free to pass them on to me.
