Check Credit Report and Credit Score--How Do They Measure Up?
Check your credit report and credit score right off, before you start a business. Both could have major impact on your new start up business going forward. Bank credit to small business has tightened drastically. It is almost impossible for a company with pristine credit to get a loan and virtually impossible for someone with less than great credit to get a loan.
Even if you do not need to borrow money, you will need to open a bank checking account and get a business credit card. In all cases, your personal credit history will be scrutinized extensively, particularly today.
Typically in the past, many a small business was initially capitalized by the entrepreneur borrowing against an existing home equity line of credit that he or she had established previously. Until recently, interest rates were low and business was booming, so the financial technique worked well for most small business owners.
Bank Loan Criteria Tightens
Banks are now looking to make more traditional business loans to small business people, looking at their business plan, cash flow projections and the like. Because there is no business credit report to look at for a new business or a start-up, the bank wants to look closely at the entrepreneur’s personal report.
After all is said and done, a banker needs to know two and only two things about you--are you a person who will (1) pay back his money, and (2) will you pay him on time? That is why it is so important in the initial stage of investigating a business idea to check your credit report and score for your own evaluation and answer the question: will my current credit allow me to move ahead and to start a business?
Check Credit Report
You can check your credit report free of charge and your score for just a few dollars. Under the Fair and Accurate Credit Transactions (FACT) Act, you are entitled to get a copy of your report free of charge once a year (You can also get a copy of your report for free if you have been turned down for credit.
There are three nationwide credit monitoring companies from whom you can get a free credit report or you can go to the website www.annualcreditreport.com and get a free combined report. This is the only website that is set up to furnish you with a free annual credit report. Numerous other websites will offer a "free credit report" but it is tied in with some other money-making proposition, that is, you will have to pay for something else or sign up for something else.
You can order your free annual report by visiting the website or by calling 1-877-322-8228. You can also complete the Annual Report Request Form at the website and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281 if you are uptight about using the internet for such vital matters. It goes without saying that you should never provide personal information to anyone purporting to offer a free annual credit report. www.annualcreditreport.com will not approach consumers via email, telemarketing or direct mail solicitations.
Additionally, you can order your free annual report from each of the three major credit monitoring companies. You could order all reports at once, or you could space them over the months of the year. The law allows you to order one free copy of your report from each of the nationwide consumer reporting companies every 12 months. That means, in effect, that you can order a free annual report from www.annualcreditreport.com and then you can order individual reports from the three companies.
How to Order Credit Reports
What information do you need to provide to get your annual free report? You need to provide your name, address, Social Security number, and date of birth. If you have moved in the last two years, you may have to provide your previous address. To maintain the security of your file, each nationwide consumer reporting company may ask you for some information that only you would know, like the amount of your monthly mortgage payment. Each company may ask you for different information because the information each has in your file may come from different sources.
If you request your report online at www.annualcreditreport.com, you should be able to access it immediately. If you order your report by calling toll-free 1-877-322-8228, your report will be processed and mailed to you within 15 days. If you order your report by mail using the Annual Credit Report Request Form, your request will be processed and mailed to you within 15 days of receipt.
How do you evaluate your report once you get it? What’s in your report will show up in your credit score, such as late payments, etc. You need to carefully check your report for errors. When you find one or more, you need to get them fixed because they could substantially hamper your efforts to start a business. You also need to check your report—and you should do this on at least an annual basis—for identity theft. There have been instances, for example, where someone might have opened an account with the local utility company in your name and never paid the bill. The utility company may be sending notice after notice to another address and this could be reflected on your report. It pays to check and keep on top of these things.
Credit report: Your credit payment history is recorded in a file or report. These files or reports are maintained and sold by consumer reporting agencies (CRAs). One type of CRA is commonly known as a credit bureau. You have a credit record on file at a credit bureau if you have ever applied for a credit or charge account, a personal loan, insurance or a job. Your credit record contains information about your income, debts and credit payment history. It also indicates whether you have been sued, arrested or have filed for bankruptcy.
Credit scoring: Most creditors use credit scoring to evaluate your credit record. This involves using your credit application and report to get information about you, such as your annual income, outstanding debt, bill-paying history, and the number and types of accounts you have as well as how long you’ve had them.
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