This is a guest from the ChamberofCommerce.com
Credit management is more important than ever.
The slowdown in the U.S. economy has caused banks to tighten their belts in the lending departments.
They have placed new restrictions and in many cases dusted off old restrictions when making loan decisions.
The IRS has even stepped in with new credit and debit reporting laws hoping to reduce the tax gap.
Understanding your credit report is vital to your business, particularly when you are just starting and need start-up capital.
These are common beliefs about credit scores but they are all myths you must be aware of.
Prepaid Credit and Debit Cards Boost Your Score
Companies that offer prepaid debit and credit cards do not report to credit bureaus so they do not impact your credit. If you are in a situation where you need to build or rebuild your credit then think about a secured credit card. These cards require some type of collateral to obtain but as you use them responsibly your credit score increases. Before long you will find yourself obtaining unsecured credit cards.
Paying Off Negative Debt
Many people are surprised when they pay off a loan that has gone to collection only to find it is still on their credit report two years later. Your credit report encompasses your credit history. Positive and negative entries can remain on your credit report for up to 10 years. To avoid negative debt showing on your credit report, here are tips to avoid business debt and bankruptcy. Make sure to that when you pay off the negative debt, know that it will not automatically disappear from your report. Here's some other factors to consider:
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- Credit Inquiries: Despite popular belief, not all credit inquiries impact your score. The two types of inquiries are hard and soft. Hard inquiries are done when you apply for a loan or credit card. These can impact your score but usually only by a few points. Soft inquiries are run when you get those pre-approved credit offers or you pull your credit report. These do not impact your credit.
- Closing Credit Accounts: A common misconception is that closing credit accounts you don't use will increase your credit score. This action can actually decrease your credit score. Having large amounts of credit you are not using looks better on your credit report than only having a few credit cards you use heavily.
- Certain Unpaid Bills: While it is true that not all paid or unpaid bills will appear on your credit report, this is completely up to the discretion of the credit company. Mortgages, credit cards, and property management companies commonly report all activity to credit agencies. If you don't know, ask if they report to credit agencies. Another way to avoid this unknown is not to pay your bills late.
I Pay My Bills So I Don't Need To Check My Credit
This is a dangerous misconception to have. Even if you have never missed or been late with a payment it is vital to check your credit annually. Companies make reporting errors and knowing your credit report will alert you to fraud.
- A Large Salary Increases Credit Scores – Large salaries are not the yellow brick road to high credit scores. Paying your bills on time and actively managing your credit is what keeps your score high. It is extremely easy to make large amounts of money and have poor credit.
- A Large Savings Account Increases Credit Scores – Bank accounts such as checking and savings are not reported to credit agencies and have no impact on your score. Income from employment, child support, or alimony does not reflect on your credit either.
Where to See Your Credit Report
Knowing what is in your credit report is one of the first steps to sound financial management. There are three agencies that monitor and report credit to lenders. They are: Experian, Trans Union, and Equifax.
Knowing the common myths and misconceptions about credit scores and reporting will help you to better manage your personal and business credit. This will make acquiring the credit necessary to run a successful business much easier. Monitor your credit report at least annually and pull from all three bureaus to get the best information.