Credit Issues
Credit is the one of the most important factors in opening a business. Acquiring financing for your small business is dependent on your personal credit. Potential creditors and investors see credit as an indication of your financial trustworthiness. A potential creditor is going to look at your payment history, (paying bills on time) debt to income ratios (how much debt you have versus how much debt you can afford, and public records.)

Credit Reports
Do you know what is on your credit report? Is the information reported on your record correct? If not, then how do you correct the information? These are a few of the questions that potential small business owners should ask. The key is being able to read and understand your credit report. There are three major credit reporting agencies: Equifax, Experian (formerly TRW) and Trans-Union.

Your personal credit report consists of 4 sections

1) Personal Information: Permanent information on your credit report

• Name
• Social Security Number
• Date of Birth
• Addresses (current and up to two former)
• Spouse's Name (current and possibly former if the situation applies)
• AKA's (also known as - This applies to the way your name is registered with creditors. For example: John Doe, Doe J, etc.
• Employment information
• Date your credit file was established

2) Public Records - Lifespan on credit reports:

• Bankruptcies remain for 10 years
• Judgments or liens remain for 7 years (if the debt has been satisfied) or until the statue of limitations runs out
• Criminal information has no time limit, remains forever
• Divorces filed, pending or final
• Other public information

3) Trade Lines: Life span on your credit report for trade lines is 7 years from the date of last activity. Student loans remain until the loan has been satisfied.

• Summary of accounts with high credit limit
  • Mortgage
  • Auto Loans
  • Personal Loans
  • Student Loans
  • Credit Card accounts

4) Inquires: Life span is up to 2 years.

• Requests for credit initiated by consumer
• Other Requests not initiated by consumer

Credit Scoring
Late payments and excessive applications for credit affect your credit score. Payments that are 30 days late will have a significant effect on your score. Applying for credit too many times during a short period will affect your credit score. Credit scores can range from 300-950 depending on the Credit Reporting Agency. The lower the score, the higher the risk of default.

Negative credit information can remain on your report for 7 years or longer depending on the type of line item. Bankruptcies can remain for up to 10 years. Government loans or liens can remain for an undetermined amount of time.

Prepare credit information for your small business as your small business idea develops. Think about personal credit. Check your credit report at least once a year. Write dispute letters if the information is incorrect. If the information is correct, make arrangements to pay off any old debt showing on your record. It's your credit. Do everything you can to protect it!

Tips to Maintaining Good Credit
Establishing good credit is not an easy task once personal credit is damaged. On the road back to good credit, you may face the challenges of accepting higher interest rates on loans. The good news is that there are steps you can take that will help you establish, or re-establish, your reputation as a responsible credit user. Here are a few steps to take to establish good credit reporting:

• Pay your bills on time.
• Watch your debt to income ratio.
• Limit the number of inquiries into your credit.
• Don't open several accounts in a short period of time.
• Limit credit card accounts. Close the accounts that are not in use. If you use credit cards, most banks recommend only 3 or 4.
• Check your credit report at least once a year.

ID Theft
Identity theft is the latest scam effecting consumers and it can also affect small businesses. Identity theft is when someone assumes your identity using your personal information (name, social security number, address, driver's license number, credit card numbers, etc) and obtains goods or services in your name. This can happen to small businesses as well as individual consumers. Watch your credit card receipts and shred all documents with Social Security numbers, credit card and bank account information and bank statements. If identity theft is suspected, contact the Fraud Departments of the three major credit-reporting agencies.

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