About Your Credit

One of the most important aspects of financing is the personal credit history of the new business owners. It is essential to familiarize yourself with your current personal financial situation as it appears on your credit report.

A credit report is the sum of information gathered on your credit history, by a CRA (credit reporting agency). This information is then sold to credit grantors, such as banks, lending institutions and credit card companies.

Many loan officers will order a copy of your credit report from a credit-reporting agency. Therefore, you should work with these agencies to help them present an accurate picture of yourself. Using the credit report and the information you have provided, the lending officer will consider whether you have a sound record of credit

Your credit report will include such information as:

• Your address, present and past
• Outstanding debts
• Record of payments (e.g. regular, late, missed)
• Public record information such as liens, or court judgments against you
• Your employer's name and address
• General information such as your Social Security number, and marital status

Keeping track of your credit history is a very wise move. Sending for your credit report twice a year will keep you current on what has been recorded about your credit transactions. It will also show you if there has been activity in any of the following areas:

Credit fraud: Where someone uses your credit card numbers to run up large bills. While the law protects you with a maximum payable of $50 for each card that has been stolen, the unusual credit activity may red flag your file for some lenders.

Identity theft: When someone takes an account number and/or personal information, and begins opening other accounts and running up bills you did not authorize.

Inquiries made: Every time you apply for any kind of loan or credit, the potential lender makes an inquiry, which is noted on your credit history. If you apply repeatedly, or to several institutions at a time, it can make lenders wary of your credit history. You need to be sure that all inquiries were legitimate results of your own requests, and not unauthorized, which may mean the inquirer broke the law.

Inaccurate entries: The human error factor has not been eliminated by the use of computerized records. Data can be entered incorrectly, or information from another file may be posted to yours. Payments made, may not be recorded. Checking the CRAs' records against your own, will point out any inconsistencies.

Payment record: If you are regularly mailing payments, you may be unaware that there are problems in the mail delivery system. Repeated late payments, and possibly even missed ones, may be lowering your credit status. Make sure all payments are present and accounted for.

Each CRA uses a special formula to calculate your credit score. They will give you that score, but they will not tell you how it is arrived at. So when checking your credit history, order a report from the two largest CRAs:

Lenders use a number of different credit scoring programs to determine what kind of risk you are. The best-known credit-scoring program is FICO (which was created by Fair Isaac). However, there really are multiple versions of FICO and each can yield a different credit score for the same person. In addition to FICO there is CreditXpert, programs created by individual lenders, and even scoring systems that have been created by the credit reporting agencies themselves.