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• The Scoop on Access to Capital and Your Credit Score

The Scoop on Access to Capital and Your Credit Score

written on August 09, 2010 by Marsha Powers

Is your credit score impacting you getting more money for your business?  And you don’t even know it?  Here are some tips on how to access more capital with some basic financial house cleaning techniques to improve your credit score.

We live in a viral world.  With a simple click, the world of information on all of us moves very quickly from one source to another – - errors and all.  Erroneous information in your credit data happens much more often than you think it does.  This misinformation on you can potentially cause serious problems in not only getting better access to capital for your company, but can increase premium costs in many other areas of your life.

Yes, I know.  Working with and maintaining your credit score is a pain.  I don’t know of anyone who says, “Gee, I want to spend the afternoon reviewing and updating my credit reports.”  As a matter of fact, I bet most people would prefer to go the dentist than mess around with their credit reports.  Unfortunately, your credit history is becoming a much larger factor in determining not only your financial credit worthiness with business and personal creditors, but now also in most all areas of your life, from setting auto and home insurance premiums, health care coverage to career and personal relationships.

Why?  There are many reasons, but one overriding factor is that companies, like banks and insurance companies, can more quickly opt out on providing you money and services without much explanation to you by using independent “credit report bureau” agencies.  It is your responsibility alone to make sure all information on you and your company is accurate to get the best that can be offered.  If you are not getting the funding you are requesting or if your premium rates go up unexpectedly, ask the creditor to provide you with the report or reports they used to make their decision.

Here’s the other side of this credit reporting coin story.  Companies providing services and money are much more closely monitored today by the Federal Reserve Bank and other government–regulated groups than in the past.  New federal regulations are being put into place to help prevent another financial melt down like we just experienced.  While the Feds want banks to lend more, for example, the Feds continue to use very tight risk ratio formulas to test and measure the health of a bank.  Translated, this means the Feds and others will look at your loan with a bank or the insurance premium you just got. It will be tested to see if your credit risk to the bank or insurance company is within their guidelines.  If it does not meet mandated guidelines, the creditor may be penalized.  Yes, Big Brother is watching.

Frequently Asked Questions:

What is the difference between a credit report and a credit score?
Credit Report
There are actually three major officially recognized credit bureaus that keep credit histories and generate consumer credit reports on you.  The three bureaus are Experien, TransUnion and Equifax.  Because these companies pull information from various sources, and they solely use their own data, it is not unusual to find variances in your credit report between the three bureaus’ reports.  Which is why you need to review all three bureau reports.  The reports breakdown the sources of all companies that provided a report on you to the bureau.  Another benefit to pulling your credit reports is to help you monitor and spot identity theft.

Credit Score
Credit bureau scores are often called “FICO” scores as most credit bureau scores used in the United States are produced from software developer Fair, Isaac and Company (FICO).  FICO scores are provided to creditors by the three major credit bureaus of Experien, TransUnion and Equifax.  Credit scores give perspective credit grantors formula guidelines to rate your credit-worthiness and the risk of poor payment performance or non-payment based on multiple credit report data sources on you that has been provided to the bureaus.  The higher the credit score, the lower the risk.  Typically, credit scores range from 300 to 850.  Good scores are usually identified to be 720 or 750 and above.  Other factors will be taken into consideration including income, expenses, ability to re-pay, employment history, current job and educational levels.  Because these independent companies pull information from various sources, it is not unusual to find variances in the credit score between the three bureaus’ reports either.  Which is why you need to review all three bureaus credit scores.

How is my credit score evaluated?
There are five main categories of information that are evaluated and weighted:
1. Payment history: 35% of credit score weight
2. Amounts owed on accounts: 30% of credit score weight
3. Credit history length: 15% of credit score weight
4. Types of credit in use: 10% of credit score weight
5. New credit inquiries: 10% of credit score weight
6. Other: 5% of credit score weight

Where do I get a copy of my three credit reports and scores?
Due to federal regulations established by the Fair Credit Reporting Act, the three leading credit bureaus –Equifax, Experian, TransUnion - are required to build, operate and maintain a centralized source where consumers can request a report from each of these three agencies with a single request.  The website https://www.annualcreditreport.com is sponsored by these three agencies and the only authorized source where you can request a free copy of all three agency reports once a year.  Another option is to call 877-322-8228 to get a copy of your reports.  You can get reports more often but there will be a small charge.

Your credit reports and scores will change based on age of accounts, current usage, number of accounts, and payment status.  Credit histories are not considered mature until they are 15 to 20 years old.  So information, correct or not, stays available for viewing for a very long time.

What If I find erroneous information in my credit data?
You can contact the credit bureaus and dispute incorrect data, but only the institutions providing the information may make corrections.  Some disputes must be addressed to the credit grantor institutions directly.  Public records like judgments, bankruptcies, liens are also reported.  These same groups, however, do not always send notice to the credit bureau’s that, for example, a lien has been released.

When you find errors, follow through in cleaning them up.  This cleaning up is tedious work, but well worth it in the end.  The bureaus update their reports regularly.  Do plan on spending some follow up time to check your reports to make sure the accurate information is finally on record.  You can purchase a service through the bureaus that will send you updated reports automatically.

What if I am currently seeking access to capital for my business and my personal report is wrong?
Simply print out the portion of your credit report that is inaccurate.  Attach your explanation on the inaccuracy.  Provide these to the creditor you are talking to.  It is much better that you pro-actively identify the errors in your credit report versus the creditor finding it.  Even if you are seeking capital for your company, but not required to provide personal guarantees, if you have provided your social security number, more than likely your personal credit history will be pulled and reviewed.

What if my credit report is correct and it is lower than what I desire?  How do I increase my score?
A credit score can be thought if as a snapshot in time of your individual changing credit record.  You can improve your credit information and score over time.  When you pull your credit report the credit bureaus will provide you with specific recommendations in improving your report and score.  Below are a few of the more common areas that can be improved upon:
1. Pay credit obligations on time
2. If amount owed on account is too high, pay down those accounts
3. Do not close existing accounts
4. Keep your number of credit inquiries to a minimum
5. Clear up all derogatory or inaccurate information immediately



Coming Soon: What is My Banker Really Saying When I Try to Access More Capital for My Business?

Marsha L. Powers
President & CEO
Powers Financial Group Inc.

Phone: 216.292.3399
Email: marsha@powersfinancial-group.com