Business Credit Score FAQs

Credit score on a digital tabletYou’ve heard a lot about your personal credit scores, but if you own a business, you may feel a bit in the dark about how your company’s credit is rated. Like your personal score, though, your business score is fairly straightforward once you understand the basics.

What is it?
As with a personal credit score, a business credit score is an attempt to measure the likelihood of repaying any particular debt. It’s simply a way for other organizations to use measurable data to try to predict the risk of doing business with you. You may also hear the scores referred to as “commercial” or “trade” scores.

Who calculates the scores?
The three major companies computing scores are:

  • Dun & Bradstreet
  • Equifax
  • Experian

As with personal credit ratings, your best bet is to make sure each of your scores with the leading business score calculators is in good shape.

How is it calculated?
Algorithms vary by the company crunching the numbers, but normally the main factors are:

  • On-time payment history
  • Public records, such as liens, bankruptcies or judgments
  • Number of business relationships (higher is better)
  • What percentage of your available credit is in use (lower is better)
  • How long your business has used credit (longer is better)
  • How many credit inquiries have been made (lower is better)
  • Type of business
  • Size of business/number of employees

What’s a good score?
Business credit scores use different scales than those employed for personal credit scores. For example, Dun & Bradstreet’s popular PAYDEX score ranges from 0-100 (higher is better) with a score of 75 or above considered preferable.

How do I start building a score?
If your business is a sole proprietorship or partnership, incorporate your business as either an LLC or a corporation to begin the process of getting scores. The act of incorporating legally separates your personal and business finances. It also lets you create business credit files separate from your personal ones. Next:

  • Apply for an Employer Identification Number (EIN) at irs.gov
  • Get a Data Universal Numbering System (DUNS) number at dnb.com and register your business for credit file data collection
  • Find companies willing to extend you business credit

Keep in mind that reporting business credit file information is voluntary and that some companies you do business with may not report at all. This is why it’s smart to check your credit files from the major compilers to see what exactly is being registered for your company.

How do I see the reports and scores?
You’ll need to visit the website of the company whose information you are interested in. The major ones are:

How often do I need to check it?
Generally speaking, lending professionals advise that business owners check their business credit scores at least once per quarter.

Why does it matter?
If you want to make your business into a big-time moneymaker, you will probably need to apply for a business loan at some point. A good score can mean not only qualifying for a loan, but doing so with the best terms possible. It’s not just about lenders, though. Keep in mind that anyone who potentially encounters risk by entering into or maintaining a business relationship with you may check your scores too. Simply put, a good score can help make it easier and cheaper to do business.

How do I raise the score?
The types of behavior that typically will have the greatest positive effect include:

  • Making payments on time
  • Avoiding liens, bankruptcies or judgments
  • Increasing your number of business relationships
  • Keeping your percentage of available credit in use relatively low
  • Generating revenue
  • Notifying creditors and credit file compiling companies if you find errors on your reports

Is the business score all I need to worry about?
Be advised that some lenders look at a combination of your business and personal scores. In other words, don’t necessarily think that you can skate by with poor consumer scores as long as your business is looking peachy.

Having a strong business score can make your operating costs significantly smaller. For that reason alone, it’s definitely worth it to look into making the most of your score.

What Students Can Do About Student Debt

491517475If you’re like most students, you’re putting off thinking about repaying your student loans and other debts until you’re out of school. After all, you’re probably not earning a lot of income and you’ve got other, more pressing things to worry about. However, by starting to think about how you will pay back that debt while you are still in school, you’ll make the process easier for yourself once you leave.

Create a plan
College is about having freedom, but if you are a little too free with your money, you could risk putting yourself in bad position once you need to start paying your post-college bills. The first step is to create a budget for your college life, updating it as living situation or other key factors change. This can help you free up some money that can be earmarked for your loans. As you get closer to graduation, make another spending and savings plan to reflect your financial life after graduation.

Consider working
If you’re not already doing so, think about getting some part-time work. That is, of course, if your schedule and class load allow it. By squirreling away some money, you give yourself a little more security for when you need to start making the big payments.

Don’t drag it out
There’s a strong temptation to think of your college years as a way to delay entering “the real world.” However, if this approach is leading you to take a more leisurely class load or switch majors multiple times, the bottom line is that you’re going to end up paying a lot more back once you do get out of school. Do your future self a favor and keep your debts as low as possible.

Pay off other unsecured debts
Student debt is tough enough to deal with. You don’t need mounds of credit card debt or other unsecured obligations weighing you down too. Do your best to have all unsecured debts eliminated before you graduate.

Know when you start paying
Without a doubt, you’ll spend a lot of time thinking about your post-school plans as you get closer to graduation. Part of that process needs to be understanding when you have to start paying on your student loans. Each of the different types of federal loans has a grace period after college during which you don’t have start paying. They are:

Stafford loans: Six months after graduating

Plus loans: Depends on age and type, ask your loan servicer

Perkins loans: Nine months after graduating

For private loans, contact your loan servicer. By knowing these important dates and having a plan in place now to deal with payments, you avoid the shock of suddenly having an unexpected payment to start making. The months leading up to graduation are also a good time to contact the servicers for your loans to discuss your repayment options.

Start paying if you can
It may be tough to fit into your budget, but making payments on your unsubsidized loans while you are still in school can help keep the interest that accrues under control. If you are unsure if your loans are subsidized (interest is paid for you while you are in school) or unsubsidized, contact your loan servicer.

Student debt doesn’t have to a looming monster waiting for you just on the other side of graduation. Always remember that there are steps you can take now to reduce the impact of your loans to your financial health later.

Borrowing From A 401(k): Your Decision-Making Guide

BU010806Taking a loan from your 401(k) can help you cover expenses in a time of emergency need, pay off high-interest debts, or get seed money for a larger opportunity. However, it isn’t a decision that should be entered into lightly. To make sure you are making the right choice for your situation, carefully measure both the positive and negative aspects of the decision.

Potential pros

  • 401(k) loans don’t require a credit check.
  • The interest rate for 401(k) loans tends to be competitive.
  • You repay the interest on the loan to yourself instead of a financial institution.
  • Application fees are usually very low.
  • The application process can be quick and easy relative to other types of loans.
  • It may be possible to set up repayment of the loan as an automatic deduction from your paycheck.
  • There is no prepayment penalty.
  • A loan is preferable to a disbursement, which will result in a large loss of money due to penalties and taxes.

Potential cons

  • You pay taxes twice on the money loaned: once when you initiate the loan (since the money is post-tax dollars) and then again when the money is paid out in your retirement.
  • Any time you take money out of your 401(k) – even temporarily – you risk missing out on growth potential for your investment.
  • If you lose your job or leave it, you have to repay the full amount of the loan within 60 days. If you can’t repay, the money you took out is considered a disbursement and you will have to pay early distribution penalties as well as federal and state taxes.
  • Depending on the rules of your employer, you may not be able to make contributions to your 401(k) while you are repaying the loan.
  • Since 401(k) loan payments don’t show up on your credit reports, you lose out on an opportunity to add positive information to your credit file.
  • Retirement funds are usually protected in bankruptcy, but 401(k) loans are not. If you are at risk of bankruptcy, you may be jeopardizing your retirement money by taking out the loan.
  • Relying on 401(k) loans can create a slippery slope; if you find yourself engaging in unhealthy financial behavior because you know you have the retirement money to fall back on, you could be creating a major problem for your finances.

Weighing your options

Retirement savings should never double as your emergency savings. In fact, 401(k) loans are generally seen as a choice that should be kept pretty far down the list of loan options. Because of the potential for negative consequences, it’s important to consider a 401(k) loan against the alternatives before making any decision.

Counter-Productive Couponing: A Self-Quiz

151551016Using coupons to save money on the items you need can be a great way to significantly reduce your monthly outlay. However, it’s important to keep in mind that couponing isn’t inherently good. It’s how you use the deals that matters.

If you find yourself couponing for the sake of couponing, you might be participating in behaviors that actually damage your spending and savings plan. Take the test below to find out if you have fallen into any coupon traps.

Do you:

  • Have years-long stockpiles?
  • Pay for more home or storage space than you need to hoard items?
  • Regularly buy items you don’t end up using because there was a sale?
  • Get more excited about the deal than getting what you really need?
  • Neglect responsibilities or miss opportunities because of the time you spend gathering coupons?
  • Spend extra money to drive to store with deals?
  • Deny yourself necessities until you have a coupon?
  • Eat an unhealthy diet due to the kinds of foods items that usually go on sale?
  • Regularly go off your shopping list to get deals?
  • Feel that you can’t stop couponing?
  • Engage in illegal activities – like stealing newspapers or committing pricing fraud – to get better deals?
  • Squander opportunities to make more money by spending so much time trying to save?
  • Deny other shoppers of items they might really need due to your hoarding of sale goods?
  • Treat others in ways you’re not proud of because of your couponing?

If you answered yes to any of these questions, there is a chance that your couponing has veered into an unhealthy territory. Take a step back and analyze what you are really getting out of trying to save and if there are better ways to use your time. Talk with a financial counselor if you feel you need a little help gaining perspective.

Loan Questions Checklist

iStock_000007589790SmallOdds are that you will take out at least one loan in your life, whether it’s a student, personal, car, business or other type. In fact, if you’re like most people, you’ll probably sign up for multiple loans. And you’ll likely do so without ever having been trained in how to do so.

If you work with a reputable local financial institution like a credit union or community bank, chances are slim to none that you’ll be signed up to anything with deceptive terms or abusive interest rates. But in general, it’s a good idea to make sure you know the basics of any financial agreement you’ll be entering into. For loans, you should always know:

  • The total amount borrowed
  • The interest rate (APR)
  • Whether or not the interest rate is fixed or variable
  • If the interest rate is variable, how often it can change
  • If the interest rate is variable, how is the change calculated
  • If the interest rate is variable, the limit for how high the rate can go
  • The monthly payments
  • If the monthly payments remain the same throughout the loan period
  • If the monthly payments could change, the highest the monthly payments could be
  • The total finance charges
  • If there are loan origination fees or any other expenses for initiating the loan
  • The term (how long it will take to pay off the loan)
  • How often payments will be due
  • Whether the loan is secured by collateral or unsecured
  • Any early payoff penalties
  • If you are allowed to make larger than minimum payments
  • What happens if you miss a payment
  • What happens if you default (stop paying altogether) on the loan
  • If you could qualify for more favorable terms if you improve your credit and reapply
  • What right you have to back out of the contract and how long you have to do so
  • If there any potential costs in the future not included in the monthly payments
  • Whether there are other loan products that could potentially meet your needs
  • The limitations on how the loaned money can be used
  • Any circumstances under which the amount you owe could increase
  • If there are circumstances under which the full amount of the loan could come due
  • If there are any lump sum payments required at any point

If a loan sounds overly complicated or you feel you aren’t getting the answers you need, ask for a copy of the terms. Once you have that, contact a trained financial counselor who can go over the particulars with you.

Saying No To Big Spender Friends

76730856You love your friends. You can’t even begin to count all the fun times you’ve had together. But unfortunately, you also can’t begin to count all the money you’ve blown together. Without a doubt, it can be very difficult to turn down close friends when they try to convince you to go on shopping sprees or participate in costly activities. You can, however, do it in a way that lets you maintain your friendship and your savings account.

Respond quickly and decisively
When you’re invited to take part in a money-sapping event, the more time you take to reply, the greater the likelihood you’ll succumb to the pressure to join in. Whether it’s because of feelings of guilt or nagging from others, it gets harder and harder to say no as the days go by. Be polite but firm right away and you’ll save a lot of angst and regret later.

Limit your cash
If you have a friend who likes to go on expensive spending sprees you just can’t afford, you may still be able to enjoy the experience without putting yourself in the poorhouse. Simply budget for the shopping trip and only take with you the cash you have set aside for the purpose. Leave credit cards, debit cards, checks and any other way of paying behind. Just be sure to turn down any “I’ll pay for it and you can pay me back” offers.

Enjoy the inexpensive parts
Is there a group of your pals who likes to go out for fancy meals? Are they constantly bugging you to join them? Keep in mind that you don’t necessarily have to take part in the fine dining to enjoy some time together. Let your friends know you’ll meet them for a drink afterward. That way you get to maintain your relationships without dipping into your retirement fund.

Give ‘em some credit
In the vast majority of cases, your real friends are going to understand when you turn down an offer for an expensive activity if you explain that you are saving for some bigger financial goals. And while this might sound like mom and dad advice… if they can’t understand that you are on a budget, they might not be the best people to be friends with anyway.

Create alternatives
Maybe the concert isn’t in your spending and savings plan, but a nature hike is. If you can let your friends know that you’re not just blowing them off, you can stay on the good side of your pals and your financial spreadsheets.

Talk about money
Some of your friends may be spending more than you because they have a larger income with a higher allotment for entertainment or shopping in their budget. However, some might be spending beyond their means, using credit to temporarily fund an unsustainable lifestyle. If you have a friend you think might be in this latter category, find a way to work financial goals into one of your chats. You might find that your friend is also looking for a way out of the spend-happy lifestyle. By working together to spend wisely, you can help each other have a better relationship with your money.

In no way, shape or form do you have to spend money to have close relationships with your friends. With a little strategizing you can have a lot of fun times together for very little dough.

15 Questions to Ask Yourself About Retiring Abroad

iStock_000009588614XSmallIf you’re worried about not having enough money to retire with the lifestyle you want, you may have already considered the option of spending your post-work years in another country. With prices for housing, food and other expenses often a fraction of what you would pay at home, it’s easy to see why going abroad for your golden years could be an attractive alternative.

Before you hop on that plane for your dream foreign locale, though, it’s important to ask yourself a few questions about how the move would truly impact your finances.

1. Have you spoken to someone who is currently retired there to make sure life is actually cheaper, all things considered?

2. Are you sure that expenses related to traveling back to your home country for family events won’t negate your planned savings?

3. Have you consulted with a financial planning professional to make sure your money strategy is sound?

4. Have you communicated with an international health insurance expert to get up to speed on how your medical needs will be covered? (Remember that you cannot use Medicare while living abroad.)

5. Do you have a full grasp on how you will be taxed in your new country, based on discussions with a local tax professional?

6. Have you spoken with a well-recommended real estate agent or attorney in your potential new location to fully understand the market and your responsibilities/risks?

7. Have you calculated what your transportation costs will be, whether that means buying a car or using the new country’s transportation system?

8. Are you aware of opportunities to earn extra income locally, should you need to?

9. Have you researched the cost of utilities, from basic expense to needing to use a generator periodically?

10. Have you visited your prospective new home to get a “boots on the ground” feel for what your new life would be like?

11. Do you have a complete budget in place for monthly expenses in your new country?

12. Have you talked with locals about any recurring costs related to severe storms, or the possibility of other natural disasters?

13. Do you have a plan for paying to furnish your new home, set up internet, get cable (if desired), or other move-in costs?

14. Have you considered a plan for what will happen when you eventually need extended care?

15. Have you studied the country’s political dynamics to get a feel for the general stability?

If you answered no to any of these questions, you may need to do a little more homework before heading off for life in a new country.

Also keep in mind that there’s nothing wrong with trying out a new locale for a few months before making a full commitment. If you are thinking about retiring overseas, consider taking an extended vacation there first to see what life would really be like.

Online College: Rights and Wrongs

iStock_000003865535SmallIt seems like just about everything is being made into a mobile activity these days: watching movies, executing financial transactions, even getting a college degree. With that last one really gaining momentum, you might be wondering if going to college online is the best option for you. Before making a decision on this potentially life-altering matter, it’s wise to think about how the alternative of taking courses online fits with your goals, traits and circumstances.

 

Getting a degree online might be right for you if:

  • You’re looking to save money on transportation, housing, textbooks or other campus-related expenses
  • You want to work full- or part-time while taking classes
  • You’re looking for career-building education that won’t interfere with your current working situation
  • You’re looking for an inexpensive way to “dip your toes in the water” of the college experience
  • You want to take classes while caring for family members
  • You want to finish your degree more quickly by taking more courses (no scheduling conflicts exist with online courses)
  • You have a disability or other characteristic that makes it difficult to attend classes in-person
  • You want to pay less for tuition (in some cases)

 

Getting a degree online might be wrong for you if:

  • You struggle to create structure or motivation for yourself
  • You are looking for the networking opportunities brick and mortar campuses can provide
  • You find that you thrive academically in a face-to-face dynamic
  • You want to be able to regularly ask your professors questions directly
  • You are in a location where internet access is spotty
  • You are afraid that your financial aid won’t cover all your classes (in some cases)

With all the flexibility offered by online learning these days, your best way to approach your college education is probably to determine all your goals for the next 2-4 years and then build your education around that.

8 Steps for Avoiding Military-Targeting Scams

177005416If you’ve been in the military for long, you’ve surely encountered them: the financial vultures who circle around bases, looking to take advantage of members of the armed forces. It seems they will use just about any means necessary to separate you from your hard-earned money. However, by learning how to identify these predators in the field, you can steer clear of their deceptive and damaging offers.

Commit to saving
No matter what your line of work, there are always going to be times when life throws you a curve. Vehicles break down, family members need help, and household items need replacing. You can’t always predict when these things will happen, but you can be prepared for when they inevitably do. By regularly contributing to a savings account – even with a small amount per month – you can deal with life’s unexpected costs without having to resort to risky or expensive financial products.

Plan ahead
If you leave financial decisions to the last few days or hours before you are sent across the country or across the world, you risk putting yourself in a desperate situation. In most cases, this is going to lead you to financial products or offers that aren’t in your best interest. If you haven’t done so already, develop a plan for what you will need to resolve before you are called off to a new address.

Check credentials
As crazy and crass as it sounds, there are hundreds of people out there looking to target military personnel for financial schemes that are questionable at best and disastrous at worst. Ask the community service officer on base to help you verify which organizations or individuals offering help are actually affiliated with the armed forces. It’s also not a bad idea to check out information from the Better Business Bureau at www.bbb.org. They even have a military-specific section at www.bbb.org/military.

Avoid products with up-front fees
A favorite ploy of scammers who target men and women in uniform is to offer financial services or loans only after an advance fee is paid. In most cases, these fly-by-night operators just take your money and you never hear from them again. Your best option is to work with reputable community banks or credit unions for your financial needs.

Address your credit
Another smart step for avoiding rash decisions is to maintain your credit scores and reports in a way that makes you likely to qualify for a loan, should you need one. The rates you’ll get for a personal loan from a credit union or community bank are likely to be MUCH better than what you would get from less reputable lending establishments. In some situations you may qualify for an emergency loan from the government, but your best bet is to always have the option to qualify for a loan on your own.

Think carefully about extra insurance
There are unscrupulous agents out there who will try to convince you that your government-provided insurance isn’t enough to protect yourself or your family. However, the wise move is to max out the coverage plans you already have first before looking to get any extra policies.

Be wary of “adjustable” terms
A favorite trick of sketchy agents or dealers is to sign you up for a contract with a promise that you’ll be switched to better terms at a future point. The pitch usually goes something like: “Because of our rules, we have to keep these terms on the contract for now, but I can get you a better deal after you sign up because you’re in the military.” Bottom line: Unless it’s in the contract, the person making the deal with you has no obligation to live up to their word. Always get offers in writing first.

Get a second opinion
You’re never alone in the financial world. There are always resources you can turn to for help. If something sounds fishy, asking a certified financial counselor for help can get you the guidance you need to make the best choice for your money.

Military officials and the federal government have been cracking down on unsavory financial practices that target servicemen and women. But keep in mind that you can do your part too. If you encounter anyone making offers that resemble any of the above-mentioned scams, report them to your base’s Armed Forces Disciplinary Control Board.

Discharging Student Loans Through Bankruptcy

488960049Student debt is weighing on you like a baby grand piano on your back. You honestly have no idea how you can make payments. You’re considering throwing up your hands and declaring bankruptcy to rid yourself of the unworkable debt. But not so fast. There are a few things you need to know before you go down this path.

Who can have loans discharged?
In order to have your student loans discharged, you must show that paying them would cause an “undue hardship” for you and/or your dependents. Generally speaking, in practice this is a very tough standard to reach.

How is hardship determined?
Each court can determine what standard they use to determine undue hardship. A common measurement is known as the Brunner test. Under this test, you are allowed to discharge your student loans only if:

  • You cannot maintain a minimum standard of living for yourself or your family because of a very low income
  • Your current financial hardship is likely to endure for the life of the loan
  • You have made a concerted effort to repay your loans

Other tests bring different factors into the equation, but in general the recurring themes are a very low income and a financial situation that will probably remain difficult.

How do I know if I can discharge?
Given the varying methods for handling these types of cases, your best bet is to consult with a bankruptcy attorney in your area who has experience dealing with student loan issues. If you’re worried about the cost of using the services of an attorney, research organizations that provide free or low cost help in your area, such as Legal Aid.

If you feel like the above hardship criteria apply to your situation and you don’t foresee being able to pay back your loans, you should definitely get in touch with an attorney. Just know that you’ll need to show evidence of your difficult situation and that the going may be tough.