Building Credit-From The Basic Foundation To Starting Over

September 22,2018 by  
Filed under , Free Debt & Credit Tips

Building credit, whether your just starting out or starting over, can be an emotional adventure at times. From the initial excitement of our very first credit card, to the disappointment and frustration of when we were turned down, it always seems to be like a roller-coaster ride filled with highs and lows and ups and downs. Its for this reason that we all should be well informed and come prepared with a good sound basic strategy behind us that will help keep us even keeled as we begin this process.

Building Credit-From The Beginning

When initially building our profile, we sometimes do things that at the time seemed to be OK, only to find out later that is was not only a poor decision, but it also turned out to hurt all of our credit building efforts and strategies we worked so hard at. We were surprised to find out that while we believed we was increasing our score by getting that extra card, we were actually over-extending ourselves, thus decreasing our our own credit rating due to our ignorance and are lack of knowledge in this area. Yes, you can have too much debt at one time(especially in the beginning). Even though it’s hard to imagine that since you were awarded that extra piece of plastic without even trying to get it, when used improperly(improperly meaning excessive and foolish usage thus putting you in to much debt to soon, to actually canceling the card altogether as this to can hurt you) it will damage your credit rating. You need to remember when you are first building credit, it’s best to go slowly and methodically so you don’t make any foolish mistakes that will turn out to hurt all of your credit building efforts down the road. By taking this approach you will build a strong history with a high rating that will go a long way towards helping you achieve all your personal and financial goals.

Credit Building-Starting Over

Rebuilding credit can be a bit more challenging if you someday find yourself in that bad situation where you must start all over again for one reason or another. After going through some type of misfortune in our life, whether it be by our own doing or for some reasons totally beyond our control, we can sometimes find ourselves needing a complete makeover. Unfortunately however, there are no do-overs with our credit history. What happens to our credit score can stay with us for a long time. Your bad debts can follow you for up to 10 years if not properly handled. That’s why it is sometimes so hard to begin again. Even if you pay off your bad debts, your history could still be listed in a negative manner, which in turn will continue to hurt your credit score for a long time.

Building Credit-Educating Yourself For Either Situation

Whether your just building credit for the first time, or your rebuilding your history after some tough personal situation you were in, you really need to educate yourself with the whole process. If your just building credit and trying to establish a positive history, you should at the very least be familiar with some basic credit building strategies. If you need to rebuild your history, then you need to be well informed of all your options and who is the best qualified individual or organization that can properly assist you and your needs in order to achieve this as quickly as possible.

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One Response to “Building Credit-From The Basic Foundation To Starting Over”
  1. Allan Henry says:

    In order to determine if you will be able to establish, build and maintain true corporate business credit for your new or existing company, very carefully consider each of the following C’s to see how you would look to a potential lender looking at things from the lender’s point of view. Here are the five C’s of building corporate business credit:

    Capacity — This is an evaluation of your ability to repay the loan. The financial institution wants to know how you will repay the funds before it will approve your loan. Capacity is evaluated by several components, including the following:

    Cash Flow — Cash Flow refers to the income a business generates versus the expenses that it takes to run the business which is analyzed over a specific time period. For example, if a new or existing company regularly generates ten-thousand dollars a month of revenue, and that company has expenses of eight-thousand dollars a month, the lender would determine that there is two-thousand dollars a month in cash flow that could effectively be used to repay the loan. If a company has the same amount of expenses as income, that would mean the cash flow would be zero and the potential lender would have reason to be concerned about how the company plans to repay the debt from either the loan or the credit line being applied for by that company.

    Payment History — Payment history refers to the timeliness of the payments that have been made by a new or existing company on previous loans granted by that lending institution, or by others to which that company used prior to seeking additional funding. In the past, it was much more difficult for commercial institutions to accurately determine whether a small company or corporation had a good strong business credit report or a good solid payment history. However, today there are companies that specialize specifically in the evaluation of commercial credit ratings (such as Dun & Bradstreet) that are able to provide this kind of history to nearly all commercial and private lenders.

    Contingent Sources — Contingent sources for repayment are additional sources of income that can be used to repay a loan. These could include private trusts, personal assets, savings or checking accounts, and other resources that might be considered usable by your company to help secure a loan or credit line. Ultimately, capacity is the main requirement for lending and corporate business credit. The ability to receive regular payments generated by a company’s cash flow is the easiest way a financial institution can be guaranteed to be repaid for lending to you and your company.

    Business Capital– Typically, a company’s owner must have his own funds invested and at risk in the company before a financial institution will ever be willing to risk their own investment into your company. Business capital is an owner’s personal investment in his or her business which could be lost if the business is a failure. There is no fixed dollar amount or percentage required by the potential lending institution that the owner must be vested in via his or her own company before he or she is eligible for a business loan. However, most lenders want to see at least twenty-five percent of a company’s funding coming from the owner before they will step up to the plate.

    Business Collateral — Business colateral simply means heavy machinery, stocks and bonds, and other expensive business assets that can quickly be sold by the lending institution if a borrower fails to repay the loan back as agreed. These company assets are considered to be viewed as business collateral. Since small items such as computers and office furniture are not typically considered to be viewed as business collateral, in the case of most small business loans, the owner’s personal assets (such as his home or automobile) are required in order for the loan to be approved by the lending institution or private lending source. When an owner of a small business uses his or her own personal assets as a guarantee on a business loan, that means that the lender can sell those personal items to satisfy any outstanding amount which may be due to them that is not repaid as agreed.

    Conditions — This is an overall evaluation of the conditions or specific terms surrounding the loan including general economic climate at the time the loan is requested and also includes the general purpose for the use of the loan by your business. Economic conditions specific to the industry of the business applying for the loan as well as the overall state of the country’s economy also factor heavily into a lending institution’s decision to approve a loan for a business. Clearly, if a company is in a thriving industry during a time of solid economic growth, there is more of a chance that the loan will be granted to the business than if the industry is declining and the economy is uncertain. The purpose of the loan is also an important factor in the decision as well. If a company plans to invest the loan into the business by acquiring assets or improving its equity, there is more of a chance of approval than if it plans to use the funds for more risky expenses such as expanding into new markets. Most financial institutions require that the borrowed funds are to be used solely to increase income or decrease business expenses.

    Character — This is a highly subjective evaluation of a business owner’s personal history and his or her business history. Lenders have to believe and proove that a business owner is a truthful, stable, reliable and strong individual who can be depended on to repay the loan that they approve for a business. Background characteristics such as personal credit history, education, and work experience are all factors in this business credit analysis. Note: When you are applying for a small business loan or lines of credit, don’t forget the importance of personal relationships. Apply for a business loan or line of credit at a bank where you already have a positive business relationship. Also, make an attempt to meet with the person who will be evaluating your application, such as a bank’s lending officer, rather than the teller who handles your day-to-day banking transactions. One important thing to remember, most banks today, replace people frequently to avoid favoritism from client to client, so be absolutely certain to maintain a positive relationship with all bank officials that you deal with.

    The five C’s to credit are very important to lenders when evaluating the risk in a financial credit transaction.

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