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How Personal Credit Cards
Being Used for Business Can Destroy Your Credit
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Recently we were hired by a business owner who
used his personal credit cards for business transactions and
expenses. Although this may seem like a good idea ,when a
consumer has great credit scores and begins to use personal credit
cards for business reasons, they may very well find themselves with
consistently fluctuating credit scores. As balances increase
over 10% of limits, scores start to drop. The closer the
balance gets to the limit the lower the score goes.
For example: Let's take a personal Amex card that has a
limit of $20,000 (as opposed to limitless Amex cards which wouldn't
affect the score). If at any given moment the balance was at
$19,500, when the business owner's credit needed to be pulled for a
real estate transaction, his score could drop 50-80 points.
That is a lot of score to lose when looking for the lowest interest
rates on a 15-30 year loan. This particular client is in the
Real Estate business so it is more important for him than most to
keep his scores at their best all the time.
Most individuals don't realize how much balances on revolving
credit (any credit that you can pay the minimum and charge the
maximum) affect the scores. The other factor is just because
you pay down the balance doesn't mean the score will immediately
increase. The creditor has to update the change to the three
credit reporting agencies, Trans Union, Equifax, and Experian, before
it will reflect on the scores. The update costs the creditor
time and money so it may not be updated for months in some extreme
cases. We physically updated the balance change for this client
to insure when the report was pulled the next week it reflected
the score increase needed. We do this often for clients who are
in the midst of trying to save the most money in interest on a long
term loan.
This is where business credit cards work beautifully.
Although you do have to sign personally for business credit cards
they are usually not listed on your personal credit profile.
You see them on personal credit when the card holder defaults and
they become charge offs (credit that is not paid and considered a
collection). Besides high balances, opening and closing credit
has a detrimental effect on scores. For the first year a card
is opened or closed scores could drop up to 60 points. So
business credit cards afford a business the opportunity to make
charges to credit cards, have high balances, and open and close
credit without worrying how it will affect the business owner's
personal credit scores. This is a great asset to any business
owner that is consistently charging business expenses on credit
cards. I know I personally could have a $20,000 and up
business charge on credit cards many months of the year. These
days it is so much easier, and in many cases mandatory, to use credit
cards.
The key is before applying for business credit business
owners must make sure they have very good, if not excellent, business
and personal credit scores. Creditors underwriting business
credit cards will review both personal credit scores and business
indexes and scores as well. The most popular business credit
bureau is Dun & Bradstreet but there are many. It is
amazing how much information these business credit bureaus
collect. On over 100 million businesses Dun & Bradstreet
tracks around the world ,"it makes over 1.5M updates to our
database on a daily basis. It could be major transactions like
paying vendors or making lease or mortgage payments. But it could be
seemingly smaller transactions like equipment leasing, advertising,
shipping packages or underwriting insurance."1 The good news is,
like personal scores, business credit can also be improved and
enhanced with the right tweaking, knowledge, and wisdom. To
learn about your business credit you can buy your credit report and
scores at Dun & Bradstreet credit site. Look for the small
business tab. The comprehensive credit report is, in my
opinion, the best information for the price.
Feel free to call us if you have any business credit
questions or would like more info on improving your scores.
1
Nancy Castleman - Co-author of "Invest in Yourself: Six Secrets
to a Rich Life" and founder of Good Advice Press
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Call
Now for a
Free
Credit Education Seminar!
914-524-8300
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Do You Have Any Credit Questions?
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"Great credit brings great
opportunity!!" Copyright
2010
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Call
Today for a Free Credit Education Seminar!
914-524-8300
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Do
you know what scores Dun & Bradstreet Use?
How can you get a copy of your reports and scores?
Are
companies reviewing your business credit?
Are
you being denied credit or passed over on bids due to poor credit
scores?
Call for your FREE Educational Seminar!
This training includes indepth education on each of the credit
reporting agencies and the scoring systems associated with them. We
will also educate your management staff on credit, the unknown dangers
of credit score reduction and the ways to help your clients have peace
of mind and get the credit they need.
Contact NSA Today!
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August 20, 2010
Amanda, the work your
office does is exceptional. I am including the client's lawyer and
realtor in this
e-mail. The work your
agency does has assisted many of my clients. You were able to improve
this person's credit in a short period of time, enabling her to apply
for the preferred loan that she wanted. Again thanks for the great
work. It's nice to have a network of people to work with that are the
best at what they do.
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