When you apply for a loan, the lender will look closely at your FICO score, using the number they find to determine the interest rate they will charge, or even if you qualify for the money at all. And when you are ready to buy a home, a low FICO score could sink your dreams of homeownership and make your landlord very happy. Your FICO score even plays a role in your employment, since many companies check the credit of their job applicants and factor that information into their hiring decisions.

FICO scores are expressed in a range, with a low of 300 and a possible high of 850. The higher your score, the better your credit, and a score above 800 put you in the company of others with excellent credit.

If your credit score is already above 800, you automatically qualify for the lowest rates and most favorable lending terms, but what if you want to aim a little higher? Achieving perfection in the FICO score arena is no easy task; less than 2% of all men and women have a score of 850. But if you want to get there, you can learn a lot from those who have achieved FICO perfection. Here are some key things these men and women have in common.

They Have an Average Number of Credit Cards

Using credit cards and paying on the balances is a good way to build credit, so it is no surprise that those with perfect FICO scores carry plastic in their wallets. In this regard, those who have achieved credit score perfection look pretty much like everyone else.

Men and women with FICO scores of 850 carry an average of four credit cards, very similar to the average for their less creditworthy peers. But those with perfect FICO scores have their choice of cards, and they tend to choose based on rewards, bonuses, and other valuable financial perks.

They Are Not Necessarily Debt Free

You might think that people with perfect credit would have paid off all their debts, but that is not always the case. While it is true that members of the 850 FICO club have average debt that is half that of their peers, a surprising number do carry balances on their credit cards.

What sets those perfect credit score achievers apart is how they are utilizing their debt and how quickly they are paying it off. Those with perfect credit are likely to say they are actively working to pay off their existing debt, and their responsible use of credit is reflected in their stellar FICO scores.

They Use Relatively Little of Their Credit

Another thing members of the 850 FICO score club have in common is their relatively low credit utilization rate. This makes sense, since the amount of outstanding credit is a factor in determining credit scores.

It is not unusual for someone with a $10,000 credit limit on their credit card to use $7,000 or $8,000 of that amount, but those with perfect credit tend to be much more conservative. Given that same $10,000 credit limit, an individual with perfect credit might limit their spending to just $2,000 or $3,000.

Furthermore, those with perfect credit are more likely to pay off the entire balance, or at least a high percentage, each month. While many members of the 850 FICO club do carry a balance, their outstanding debt tends to be lower than their less creditworthy peers.

The Population Skews Older

It can take some time to build a stellar credit score; just ask the 22-year-old college graduate. So, as you might expect, the population of perfect FICO score overachievers tend to skew a bit older.

They may be older than average, but they have also used their time well. Over the years, men and women with perfect credit scores have worked hard to pay their bills on time, and they learned to keep their spending and their use of credit under control.

Now that you know what those with perfect 850 FICO scores have in common, you can start emulating their winning ways. From how they spend to how they view debt and credit; these exceptional men and women have a few key traits in common. If you want to reach the 850 goals, learning from their example is a good place to start.

The post Perfection in FICO Land: What Those with Perfect Credit Scores Have in Common? appeared first on Harrison Financial Group.

It may not be pleasant to see your financial situation laid out in black and white, but the problem won’t go away by itself, and you need to be proactive if you want to return to a better credit standing. Here’s what to do to ensure your credit rating is as clean as possible.

1) Access Your Credit File
Everyone has the right to see a copy of the information held on their credit file. The companies who compile these records are called credit reference agencies, and the main ones in the US are Experian, Equifax, and TransUnion. A quick search online will bring up details of how to obtain copies of the data they hold on you, and it’s worth obtaining the files from all three companies, as the information on each of them may be different.

2) Check for Errors
Once you have your files, check that all the information held on them is correct and that there are no obvious mistakes. Some possible errors include:

• Duplicate entries, where the same item of information is included more than once.
• Accounts listed as still being open, even though you’ve closed them.
• Debts which you’ve cleared, but are marked as unpaid.
• Incorrect balances shown for credit cards and similar accounts.
• Flat-out mistakes, such as information about another person being included on your file (aka ‘mixed file’), usually because of similar names and/or addresses.

If you spot any of the above or anything else which seems wrong, you have the legal right to have the error corrected. Instructions on how to raise a query with the credit reference agency will have been included in the documentation sent with your file.

3) Check for Unknown Activity
Identity theft is still a major problem, despite the many millions of dollars the finance industry has spent to reduce its impact. If you don’t recognize an entry on your file, such as a credit card application you don’t remember making, it’s important to query this as soon as possible. If someone else has been using your details to apply for credit, the consequences can be quite serious indeed.

4) Clear Up Minor Problems
If you’ve overlooked a minor debt in the past, such as an invoice for a catalog purchase, then it’s possible that this default was listed in your file without your knowledge. Many companies don’t pursue small debts if it’s not economical to do so, and simply write the money off while still reporting the default to the credit agencies. If you see any such debts, pay them off if you can, and ask that the creditor informs the reference agencies so that your files can be updated.

5) Monitor Your Files
Once you’ve cleared your files of all errors and omissions, it’s important to keep an eye on them in case any more incorrect information is added in the future. You can do this either by making a note to yourself to request a new copy of your files every year or by signing up to one of the many monitoring services which will inform you every time a new file entry is added. By doing this, you can clear up any undesirable information as soon as possible before it causes too much damage.

If you have bad credit, confronting the situation is not an easy step to take. While there’s no magic solution that will clear your rating instantly, making sure that your credit file is correct and up to date is the vital first step toward getting your creditworthiness back on track.

The post Is It Time to Bite the Bullet and Clean Up Your Credit Rating? appeared first on Harrison Financial Group.

1) Assuming Short-Term Loans Are Better Than Long-Term Loans

Short-term loans aren’t always better than long-term loans. While they do offer faster access to capital, they have some serious drawbacks compared to long-term loans. You can still apply for short-term loans, but you should look into long-term loans as well.

Short-term loans are defined by their short repayment period. You’ll usually have a few months to one year to repay them. Long-term loans, on the other hand, have a longer repayment period, such as two to five years. And with their longer repayment period, long-term loans are available in larger amounts and with lower interest rates

2) Charging Expenses on Personal Credit Cards

Avoid charging business-related expenses on your credit cards. The Internal Revenue Service (IRS) doesn’t necessarily prohibit the use of personal credit cards for business-related expenses, but it’s a bad habit that’s best avoided.

When using personal credit cards to pay for your small business’s expenses, you may struggle to track tax deductions. You’ll have to go through your credit card statements, which likely contain a combination of personal and business-related expenses. Furthermore, charging business-related expenses on your credit cards won’t build your small business’s credit; it will only build your credit.

3) Neglecting to Create a Business Plan

You should create a business plan before attempting to secure financing for your small business. Most banks, as well as many alternative lenders, require a business plan for business loans. With this document, they can offer personalized financial products and services based on your small business’s needs.

At the same time, a business plan allows banks and lenders to gauge your risk of defaulting on loans. They’ll evaluate your business plan to determine whether or not you can repay the loans. Neglecting to create a business plan means that banks and lenders will likely reject your applications.

4) Only Applying for Unsecured Loans

Another small business financing mistake to avoid making is only applying for unsecured loans. Most loans can be classified as either secured or unsecured. Secured loans are debt-based financial instruments that require collateral, whereas unsecured loans are debt-based financial instruments that don’t require collateral.

The problem with unsecured loans is that they can be difficult to obtain. Banks and lenders take on a greater risk with unsecured loans because, unlike with secured loans, they aren’t backed by collateral. Secured loans offer protection for banks and lenders. If you default on a secured business loan, the bank or lender can take ownership of your provided collateral. Of course, you’ll maintain ownership of the collateral as long as you repay the secured business loan.

5) Borrowing More Than You Can Afford

Many small business owners make the mistake of overborrowing. In other words, they borrow more money than the amount needed to finance their business’s operations. Overborrowing is a common financing mistake that can hurt your small business in several ways. When overborrowing, you’ll incur more interest fees.

Overborrowing can also lead to a higher debt-to-income (DTI) income, so you may struggle to get approved for additional loans in the future. It won’t affect your small business’s income, but it will increase your small business’s debt. Therefore, overborrowing will often cause a higher DTI. To avoid overborrowing, determine how much money your small business needs by calculating its expected expenses. You can then apply for a loan in this amount.

6) Overlooking SBA Loans

Don’t make the mistake of overlooking U.S. Small Business Administration (SBA) loans. SBA loans are a type of debt-based financial instrument that’s offered by banks in partnership with the SBA. SBA loans, though, are designed specifically for small businesses with fewer than 500 employees on their payroll.

There are a few different types of SBA loans. 7(a) SBA loans, for instance, have capped interest fees and offer a guaranteed portion to the bank or lender, whereas 504 SBA loans are long-term loans with fixed-rate financing that are intended for job creation and growth projects. Regardless, SBA loans are an attractive alternative to conventional business loans. They have lower requirements, lower interest rates, and more favorable terms.

7) Not Monitoring Your Credit

You should monitor your personal credit when seeking financing for your small business. Banks and lenders will often check your personal credit when you apply for a business loan. Even if your small business has good credit, poor personal credit could prevent you from getting approved for a business loan.

Monitoring your personal credit will allow you to see all of your open credit accounts and whether those accounts have red flags like late payments. You can also find your personal credit score by monitoring your personal credit. Most business loans require a personal credit score of 650 or higher. If your personal credit score is lower than 650, you should try to increase it before applying for a business loan. With a higher personal credit score, you’ll have an easier time getting approved for both personal and business loans alike.

To monitor your personal credit, request a report from the three main personal credit bureaus: Equifax, Experian, and TransUnion. The federal government requires all three bureaus to provide consumers with a free credit report once a year. You can obtain these free reports by visiting annualcreditreport.com, which is jointly operated by the three bureaus.

Financing is a necessity for all small businesses. When starting a small business, you may have to pay for inventory, marketing, insurance, office supplies, and countless other expenses. Whether you’re applying for a loan from a bank or an alternative lender avoid these financing mistakes at all costs or pay a steep price.

The post Avoiding the Small Business Financing Trap appeared first on Harrison Financial Group.

It’s not uncommon for a business owner to need several hundred thousand dollars up-front. If you’re buying into a popular franchise, you might need a million dollars or more. Here’s how to raise the money.

#1 Cash Savings

If you’re lucky enough to have cash in the bank, then this is an easy “win.” Use as much of your cash as possible because financing a business gets expensive. If you fail, then you’ve only lost your own money. Once you start borrowing, you have to be more sure of your ability to succeed.  

#2 Traditional Bank Loan

For most business owners, this is where they will start looking for funding. A traditional bank loan isn’t easy to get though. You need to prove to the lender you’re able to open and operate a restaurant. Bankers know most restaurants fail within 10 years. While it might not be as high as a 90% failure rate (like you commonly hear online), it can be as high as 75% depending on the niche you’re operating in.

#3 SBA-Backed Loan

An SBA-backed loan means the federal government is backing your loan. In other words, the loan is insured, which puts lenders a little more at ease since they have a reasonable assurance the loan will be paid off, even if you don’t make it. 

These loans aren’t easy to get, and you have to qualify by being turned down for regular financing. 

#4 Asset-Based Lending

Asset-based lending means your inventory is used as collateral for a loan. You may or may not recognize this as a form of factoring. A lender gives you money in exchange for an equity stake in your restaurant. Because restaurants don’t have much in the way of assets, the lender secures the loan with your inventory. You may get as much as 75% to 85% of its value. The downside is these loans often come with a high-interest rate.

#5 Life Insurance Loan

If you have a cash value life insurance policy, you can get a loan to start your restaurant business. This is how Ray Kroc got McDonald’s off the ground, and it’s how Foster Farms was able to get its operation going. Your life insurance company will lend you up to the value of your policy, and the interest rates tend to be rather low. Best of all, you can repay the loan on your terms. 

#6 401(k) Loan

There is a little-known way to finance your restaurant business using a 401(k) plan. If you already have a retirement plan, and it’s well-funded, you may be able to use that without cashing it out and paying a penalty. The process is relatively straightforward. Various provisions in the Employee Retirement Income Security Act and IRS tax code allow you to invest a portion (or all) of your retirement savings into a business. You must be active in the business to do this though so it’s not for absentee business owners. 

The first step is to set up a new C-Corporation. S-Corps and LLCs aren’t allowed. Secondly, you need to set up a new 401(k) to own your new restaurant business. You need to explicitly provide for the acquisition and holding of your business inside the new retirement plan. This is normally done through qualified employer securities (stock). This is why having a C-Corp is important. Without it, you don’t have the shares to give to your retirement account. 

Rollover your existing 401(k) plan (or IRA) and have the retirement account buy all of the shares of your new company. You can invest however as much as you want into the new business without penalties. You can also make investments over time into your business. You can use the money in your 401(k) for ordinary business expenses only. 

Starting a new restaurant business can be difficult, but it’s not impossible. With all of the funding options out there, you should have no trouble finding the money to get up and running. All you need is some creativity and maybe a little luck. 

The post Growing Your Restaurant Business When You Have No Money appeared first on Harrison Financial Group.

What Makes Up Your Credit Score

Here’s the breakdown of what determines your FICO score.

Payment History (35%)

Your history of making payments on time is the biggest factor in determining your credit score. Late payments will quickly lower your score.

Amounts Owed (30%)

This portion of your score compares the amount of debt you owe to the amount of credit you have available. The lower your credit utilization ratio, the better your credit score will be.

Length of Credit History (15%)

Your score will be higher the longer you’ve had a credit history. Someone who’s just begun to build credit will typically have a lower credit score than someone with a longer credit history, even if his or her payment history, and other factors, are similar.

New Credit Accounts (10%)

Opening too many new accounts may lower your credit score. Every time you apply for a loan or a new credit card, your credit report will record a hard inquiry. A high number of hard inquiries will reduce your credit score.

Types of Credit (10%)

Your credit score will improve if you have a good mix of different types of credit accounts, such as credit cards, installment loans such as car payments, and long-term loans, such as a mortgage

Increase Your Credit Score by Disputing Errors

One of the simplest ways to improve your score is to correct errors. One in every 20 people has a large error on his or her credit report. Under the Fair Credit Reporting Act, each major credit bureau must provide you with a free copy of your credit report once per year. Request your credit report by visiting the website www.AnnualCreditReport.com.

While many websites claim to offer free credit reports, AnnualCreditReport.com is the only site authorized by the Federal Trade Commission to provide free credit reports.

Disputing Inaccurate Items

If you find an inaccurate item on your credit report, here’s what you should do.

1) Contact the credit bureau in writing and tell them what information you believe is incorrect. Send copies of all documentation that supports your dispute. Send copies of your documents and keep all originals. The FTC provides a sample dispute letter on their website. Send your dispute letter and documentation via certified mail with a return receipt requested, so you have a record that the credit bureau received it. The credit reporting company must investigate your dispute within 30 days (unless they consider it frivolous).  

2) Notify the creditor in writing that you dispute an item in your credit report. Again, send copies of any documents that support your claim and keep the originals. Send your letter and documents by certified mail and request a return receipt. When you dispute an item, the furnisher must notify the credit reporter of the dispute. If it’s found that the disputed item was, in fact, incorrect, the furnisher must notify the credit bureaus, and the credit bureaus must update their records.

Even if the furnisher maintains that the disputed item is accurate, you can request that a statement about the dispute be included in your credit file.

Remember to save copies of all correspondence with both the credit bureau and the furnisher.

4 More Ways to Boost Your Credit Score

While there’s no “quick fix” to repair your credit, there are several things you can do to boost your credit score.

Make All Payments on Time

Since payment history is the biggest part of your credit score, paying your bills on time is one of the best ways to increase your score. If you have trouble remembering what’s due when writing due dates on a calendar or set up reminders with a smartphone app.

Reduce Your Debt Load

Lowering your debts improves your credit utilization ratio and therefore your credit score. Pay more than the minimum balance due whenever you can. If you’re offered a credit limit increase, accept the offer, but don’t use it!

Use a Secured Credit Card

Secured credit cards require an upfront cash deposit. The amount of your deposit determines your credit limit. If you’re late making payments, the cash deposit becomes collateral. However, if you make payments on time, you’ll receive your deposit back if you close your account. Make sure to choose a secured credit card with a low annual fee, and ensure that you choose a lender who reports your payment history to all of the major credit bureaus. 

Become an Authorized User

Having someone else name you as an authorized user on their credit card can be an easy way to build credit history and improve your score. This approach has its benefits and risks. Consider these important points if you decide to become an authorized user.

• Being an authorized user affects both you and the primary account holder. If the card’s primary holder makes late payments or defaults altogether, your credit score will be hurt, too. Only become an authorized user if you trust that person to make payments on time, every time.
• You do not necessarily need to use the card yourself. It will still help to build your credit, as long as the primary account holder makes payments on time and keeps the credit utilization ratio low.
• Make sure that you and the primary cardholder both agree on what types of purchases you can use the card for and how much money you can spend. Put your agreement in writing; doing so will save you both a lot of confusion and hassle if there’s a dispute between you later.

Repairing your credit takes time and effort. It won’t happen overnight. If you budget carefully and use credit responsibly, your credit score will improve.

The post Boosting Your Credit Score appeared first on Harrison Financial Group.