Other factors entering the decision-making
process are whether the lender may have
already invested in a competing business and
how much competition there is in your market.
Be prepared to tell the lender how you plan to
deal with these conditions, how you have
assessed the market, and how your business
will weather economic changes.
Finally, the person handling your loan has their own personal
conditions. I like to call these the “bad cup of coffee” factors after one of
my law professors. The professor claimed to give lower exam grades
when he had a bad cup of coffee while grading.
These conditions range from the lender’s personal mood to their track
records when making loans. If he is looking for a bonus for number of
loans written, he may be more likely to approve yours. If she has
recently made a number of bad lending decisions, she may be gun-shy
about risk taking and deny your loan.
Even seemingly unrelated factors touch your loan decision. Fights with
a spouse, poor weather, allergy attacks and hunger are among a whole
list of personal issues that may be challenging your banker when you
meet with them.
You can’t improve conditions. However, you can predict and respond to
them, manage and exploit them. By researching some of the systematic
risks that may be of concern to the lender, you can preempt them. Be prepared to talk about how your business will survive seasonal trends,
or profits even with the vagaries of your particular clientele. Come
armed with good answers to why your loan fits into the lender’s overall
loan profile and goals.
Monday, December 04, 2006
Being in the right place at the right time -26
Conditions, simply put, refer to the economic climate of the
marketplace. Consider this role-play:
Paulie: Donna, may I borrow $20?
Donna: Let me check my wallet
Notice the difference? This is the only C of credit that isn’t about you,
the borrower, and you cannot control directly.
Conditions are factors that range from the global economic climate to
the positive or negative influences on the particular lender the day you
apply for a loan with them. Other factors are the tightness and
availability of money due to controls by the Federal Reserve, the
prevailing interest rates, or the economic cycles of recession or growth.
While you cannot control the economic conditions, you can study,
predict, interpret and even mitigate them.
Study the leading economic indicators for the national economic trends.
New housing starts or building permits indicate an improving economy.
The increase of interest rates and tightening of the money supply may
signal fears of inflation. Mid-swing indicators such as new hires and
fires can show you the general trend of the economy.
Conditions include factors intrinsic to the
lending business or of a particular bank or
branch of the bank that are also conditions
that are considered in a lending decision. The
bank’s particular balance sheet requirements,
goals, and the underwriting requirements are
part of the bank’s conditions. If the bank doesn’t make a loan of a particular kind such as loans on
prefabricated homes, this particular condition, no matter how good the
other Cs are for you as a borrower, you won’t get that loan. This can
also help you. If a bank is looking to expand their business in a
particular area, such as small business loans, you may get a positive
lending decision because you were in the right place at the right time. If
the conditions are right the lender may overlook some small weaknesses
in your strength as a borrower.
marketplace. Consider this role-play:
Paulie: Donna, may I borrow $20?
Donna: Let me check my wallet
Notice the difference? This is the only C of credit that isn’t about you,
the borrower, and you cannot control directly.
Conditions are factors that range from the global economic climate to
the positive or negative influences on the particular lender the day you
apply for a loan with them. Other factors are the tightness and
availability of money due to controls by the Federal Reserve, the
prevailing interest rates, or the economic cycles of recession or growth.
While you cannot control the economic conditions, you can study,
predict, interpret and even mitigate them.
Study the leading economic indicators for the national economic trends.
New housing starts or building permits indicate an improving economy.
The increase of interest rates and tightening of the money supply may
signal fears of inflation. Mid-swing indicators such as new hires and
fires can show you the general trend of the economy.
Conditions include factors intrinsic to the
lending business or of a particular bank or
branch of the bank that are also conditions
that are considered in a lending decision. The
bank’s particular balance sheet requirements,
goals, and the underwriting requirements are
part of the bank’s conditions. If the bank doesn’t make a loan of a particular kind such as loans on
prefabricated homes, this particular condition, no matter how good the
other Cs are for you as a borrower, you won’t get that loan. This can
also help you. If a bank is looking to expand their business in a
particular area, such as small business loans, you may get a positive
lending decision because you were in the right place at the right time. If
the conditions are right the lender may overlook some small weaknesses
in your strength as a borrower.
Creating Your Net Worth Statement -25
Net Worth Statement
Assets Liabilities
Current Liquid Assets Current Liabilities
Checking account 3,500.00 Capital Gains tax 1,500.00
Savings account 200.00 Salary Advance 2,300.00
Stocks/Bonds (E-trade) 4,000.00
Total Liquid Assets 7,700.00 Total Current Liabilities 3,800.00
Fixed Assets Short –Term Liabilities
Vehicles 4,500.00 Auto Loan 4,750.00
Home 84,000.00 Credit Cards 12,500.00
Personal Property 84,000.00 Business Loan 42,250.00
Total Fixed Assets 172,500.00 Total ST Liabilities 59,500.00
Deferred Assets Long-Term Liabilities
Promissory Notes 2,000.00 Student Loans 44,000.00
IRA 5,775.00 Mortgage 64,200.00
50% Interest Business 12,130.00
Total Deferred Assets 19,905.00 Total LT Liabilities 108,200.00
Total Assets 200,105.00 Total Liabilities 227,200.00
NET WORTH <$27,095.00>
Notice that the net worth was reported as a negative number. It is
estimated that one in every 10 American households has a zero or
negative net worth. These are primarily college students, recent college
graduates, or retirees on a fixed income.
The profile above is typical of a new investor. This person has gone to
college, as evidenced by the student loan liability. They have recently
purchased their home. Note the outstanding home mortgage is 77%
value of the home, indicating a recent home purchase, possibly in the
last two years. The person also signed personally for a business loan to start a
business in which they are a 50% partner. This is not uncommon.
Most of us will have to sign personally on business accounts for the first
couple of years as our business gets started.
You can improve your capital, and thus your net worth statement, in a
variety of ways. The first is simply to increase your savings and
decrease your spending. Each time you do this, more of what you earn
will appear in the assets column of your net worth statement, and tip
your net worth figure farther to the positive side.
Saving more goes hand in hand with reducing your debt. Debt
reduction lowers your liabilities and thus increases your net worth.
Learn more about strategically decreasing your debt and saving more in
Chapter 11 called “Dividing debt and conquering credit.”
The second way to have the most impact in improving your net worth
statement is to purchase undervalued assets. When you get a deal on
an asset and buy it for less than its value, you get an instant boost to
your asset column.
Assets Liabilities
Current Liquid Assets Current Liabilities
Checking account 3,500.00 Capital Gains tax 1,500.00
Savings account 200.00 Salary Advance 2,300.00
Stocks/Bonds (E-trade) 4,000.00
Total Liquid Assets 7,700.00 Total Current Liabilities 3,800.00
Fixed Assets Short –Term Liabilities
Vehicles 4,500.00 Auto Loan 4,750.00
Home 84,000.00 Credit Cards 12,500.00
Personal Property 84,000.00 Business Loan 42,250.00
Total Fixed Assets 172,500.00 Total ST Liabilities 59,500.00
Deferred Assets Long-Term Liabilities
Promissory Notes 2,000.00 Student Loans 44,000.00
IRA 5,775.00 Mortgage 64,200.00
50% Interest Business 12,130.00
Total Deferred Assets 19,905.00 Total LT Liabilities 108,200.00
Total Assets 200,105.00 Total Liabilities 227,200.00
NET WORTH <$27,095.00>
Notice that the net worth was reported as a negative number. It is
estimated that one in every 10 American households has a zero or
negative net worth. These are primarily college students, recent college
graduates, or retirees on a fixed income.
The profile above is typical of a new investor. This person has gone to
college, as evidenced by the student loan liability. They have recently
purchased their home. Note the outstanding home mortgage is 77%
value of the home, indicating a recent home purchase, possibly in the
last two years. The person also signed personally for a business loan to start a
business in which they are a 50% partner. This is not uncommon.
Most of us will have to sign personally on business accounts for the first
couple of years as our business gets started.
You can improve your capital, and thus your net worth statement, in a
variety of ways. The first is simply to increase your savings and
decrease your spending. Each time you do this, more of what you earn
will appear in the assets column of your net worth statement, and tip
your net worth figure farther to the positive side.
Saving more goes hand in hand with reducing your debt. Debt
reduction lowers your liabilities and thus increases your net worth.
Learn more about strategically decreasing your debt and saving more in
Chapter 11 called “Dividing debt and conquering credit.”
The second way to have the most impact in improving your net worth
statement is to purchase undervalued assets. When you get a deal on
an asset and buy it for less than its value, you get an instant boost to
your asset column.
Creating Your Net Worth Statement -24
Gather all of your financial records.
Compile your assets. Assets are anything of value that you own. Some
examples of the types of documents you are looking for:
Statements for savings and checking accounts, investment and
securities accounts, 401(k), or IRAs;
Deeds and titles to real estate, vehicles and equipment;
Notes or certificates of paper assets, stock or partnership interests; and
Appraisals of collectibles and other personal property.
Accounts receivable and available lines of credit can also be considered
assets, as long as the entire line of credit balance and the cost of
production for any future accounts receivable are included as liabilities.
Classify your assets into three separate classes: liquid assets, fixed
assets and deferred assets. Fixed assets can be sold, but not easily,
and will often need to be replaced. Deferred assets are ones that you
can’t access immediately such as retirement accounts and business
ownership interests.
Compile your liabilities. Liabilities are any thing that you owe. You’ll be
gathering statements for mortgages, credit cards, school loans, auto
loans, personal loans, other promissory notes payable, and estimated
tax liabilities. Classify these as current liabilities (have to be paid this
year) short-term (paid in a few years) and long-term liabilities.
To calculate your net worth, take the sum of all your assets and
subtract your total liabilities. The resulting figure is your net worth.
Your resulting financial statement will look something like this: See the next post.
Compile your assets. Assets are anything of value that you own. Some
examples of the types of documents you are looking for:
Statements for savings and checking accounts, investment and
securities accounts, 401(k), or IRAs;
Deeds and titles to real estate, vehicles and equipment;
Notes or certificates of paper assets, stock or partnership interests; and
Appraisals of collectibles and other personal property.
Accounts receivable and available lines of credit can also be considered
assets, as long as the entire line of credit balance and the cost of
production for any future accounts receivable are included as liabilities.
Classify your assets into three separate classes: liquid assets, fixed
assets and deferred assets. Fixed assets can be sold, but not easily,
and will often need to be replaced. Deferred assets are ones that you
can’t access immediately such as retirement accounts and business
ownership interests.
Compile your liabilities. Liabilities are any thing that you owe. You’ll be
gathering statements for mortgages, credit cards, school loans, auto
loans, personal loans, other promissory notes payable, and estimated
tax liabilities. Classify these as current liabilities (have to be paid this
year) short-term (paid in a few years) and long-term liabilities.
To calculate your net worth, take the sum of all your assets and
subtract your total liabilities. The resulting figure is your net worth.
Your resulting financial statement will look something like this: See the next post.
It’s not who you know it’s what you own -23
If collateral is the specific asset used to secure the loan, capital is the
sum of all your assets. It is exemplified in the role-play below.
Paulie: Donna, may I borrow $20, it’s Sunday and I
can’t get to the bank.
Donna: Let me see your bank statement.
Capital is defined as the combined value of what you own with a bias
towards liquidity. Lenders are reluctant to fund a loan unless they have
concrete evidence you have sizeable financial assets to fall back on.
Lenders take comfort in knowing you possess valuable things or have
piles of cash you can use if you have a hard time repaying the loan.
Lenders will want to see that you also have a lot to lose. For business
loans, lenders want to know that you have personally made a financial
commitment to the business. Lenders know that the amount of money
someone has at stake in the event of default is directly related to how
hard they will work to pay the loan as agreed.
Lenders will look to your personal resources to provide as much of the
needed capital as you can afford to put at risk. Depending on the capital
needs, you cannot expect any lender to loan 80 percent or more of the
capital, as they may for a home or investment real estate. It is also
possible to borrow the capital of others to use to secure a loan. The
closer the asset is to cash, the more liquid it is. Liquid assets that don’t
change in value are the best kinds of capital for the purposes of getting
a loan. Non-liquid assets that are relatively stable, like real estate, are
another good source. Non-liquid assets of a volatile nature such as
stocks or collectables are the least desirable to a lender.
You can improve your capital simply by acquiring more of it, or
increasing the value of what you have using the techniques discussed in
the section on collateral. You can improve your capital by making concerted efforts to increase your savings and decrease spending. I will
go into some specific techniques for living below your means in Chapter
11 and the appendices.
For business loans, you can improve your capital through developing
accounts receivable from customers, or raising capital from
stockholders.
Your primary method of proving your capital to a lender is through your
personal or business net worth statements. The net worth statement
lists the value of your assets, subtracts your outstanding liabilities, and
comes up with the number that is referred to as net worth. Standard
business and personal net worth statements calculate assets by adding
your purchase price and capital improvements, then subtracting
depreciation to arrive at their worth.
You are going to create a net worth statement that is “marked to
market”. This is a statement that reflects the present value of your
assets. For real estate, this is the estimated market value. For an
automobile, consider the market value according to the industry
standard, the Kelly Blue Book.* Assets such as diamond rings and stamp or coin collections also appreciate in value. Consider getting a
new appraisal every couple of years for valuable personal property.
Personal property. Your lender will always assume that your net worth
includes an evaluation of your personal property; so to refrain from
making a statement of the worth of your personal property is a financial
mistake. Use the same rule of thumb that a lender does. Personal
property is usually equal to the value of the dwelling. The lender may
also use the number that you have the property insured for.
Coincidentally, most insurance companies also use the personal
property equals the house value rule of thumb. If you have jewelry or
an expensive collection that boosts this estimate above the basic rule,
get an independent appraisal, a separate insurance rider for the item,
and list it separately on your net worth statement.
sum of all your assets. It is exemplified in the role-play below.
Paulie: Donna, may I borrow $20, it’s Sunday and I
can’t get to the bank.
Donna: Let me see your bank statement.
Capital is defined as the combined value of what you own with a bias
towards liquidity. Lenders are reluctant to fund a loan unless they have
concrete evidence you have sizeable financial assets to fall back on.
Lenders take comfort in knowing you possess valuable things or have
piles of cash you can use if you have a hard time repaying the loan.
Lenders will want to see that you also have a lot to lose. For business
loans, lenders want to know that you have personally made a financial
commitment to the business. Lenders know that the amount of money
someone has at stake in the event of default is directly related to how
hard they will work to pay the loan as agreed.
Lenders will look to your personal resources to provide as much of the
needed capital as you can afford to put at risk. Depending on the capital
needs, you cannot expect any lender to loan 80 percent or more of the
capital, as they may for a home or investment real estate. It is also
possible to borrow the capital of others to use to secure a loan. The
closer the asset is to cash, the more liquid it is. Liquid assets that don’t
change in value are the best kinds of capital for the purposes of getting
a loan. Non-liquid assets that are relatively stable, like real estate, are
another good source. Non-liquid assets of a volatile nature such as
stocks or collectables are the least desirable to a lender.
You can improve your capital simply by acquiring more of it, or
increasing the value of what you have using the techniques discussed in
the section on collateral. You can improve your capital by making concerted efforts to increase your savings and decrease spending. I will
go into some specific techniques for living below your means in Chapter
11 and the appendices.
For business loans, you can improve your capital through developing
accounts receivable from customers, or raising capital from
stockholders.
Your primary method of proving your capital to a lender is through your
personal or business net worth statements. The net worth statement
lists the value of your assets, subtracts your outstanding liabilities, and
comes up with the number that is referred to as net worth. Standard
business and personal net worth statements calculate assets by adding
your purchase price and capital improvements, then subtracting
depreciation to arrive at their worth.
You are going to create a net worth statement that is “marked to
market”. This is a statement that reflects the present value of your
assets. For real estate, this is the estimated market value. For an
automobile, consider the market value according to the industry
standard, the Kelly Blue Book.* Assets such as diamond rings and stamp or coin collections also appreciate in value. Consider getting a
new appraisal every couple of years for valuable personal property.
Personal property. Your lender will always assume that your net worth
includes an evaluation of your personal property; so to refrain from
making a statement of the worth of your personal property is a financial
mistake. Use the same rule of thumb that a lender does. Personal
property is usually equal to the value of the dwelling. The lender may
also use the number that you have the property insured for.
Coincidentally, most insurance companies also use the personal
property equals the house value rule of thumb. If you have jewelry or
an expensive collection that boosts this estimate above the basic rule,
get an independent appraisal, a separate insurance rider for the item,
and list it separately on your net worth statement.
The third way to repay a lender -22
Jewelry or other personal property. By law, a lender can’t ask you to
pledge your clothes, furniture or other personal belongings for a loan
unless these are the specific items you are buying with credit. However,
this doesn’t stop you from volunteering these assets as collateral. The
values of these items are most often shown by the independent
appraisal method. Like with real estate, get a few appraisals and use
the best.
Stocks. When you secure a loan with stocks, it is called margining. The
margin interest rate offered by brokerage houses is usually an
attractive, competitive rate. Federal rules prohibit margining stocks
above 50% of the current market value. So for purposes of lending,
your stocks only represent half their present trading value. When you
borrow against your stocks, your broker will reserve the right to ask you
to deposit more money into your account if the stock price dips too low.
This is called a maintenance margin call. Failure to make a margin call
will result in having your stocks sold to cover the costs, even if they get
sold at a loss.
Paper Assets. Promissory notes and mortgages can also be used to
secure loans. You can show the value of a note by showing the terms of
the note and proof of performance. Likewise, you can use account receivable and forward contracts to secure a line. The stronger your
proof of the payee’s performance is, the greater the value of the paper
asset.
Whole life insurance. You can borrow against the cash surrender value
of your whole life insurance policy, up to 95%. The rates are generally
very competitive since this is a secure investment for the insurance
company.
pledge your clothes, furniture or other personal belongings for a loan
unless these are the specific items you are buying with credit. However,
this doesn’t stop you from volunteering these assets as collateral. The
values of these items are most often shown by the independent
appraisal method. Like with real estate, get a few appraisals and use
the best.
Stocks. When you secure a loan with stocks, it is called margining. The
margin interest rate offered by brokerage houses is usually an
attractive, competitive rate. Federal rules prohibit margining stocks
above 50% of the current market value. So for purposes of lending,
your stocks only represent half their present trading value. When you
borrow against your stocks, your broker will reserve the right to ask you
to deposit more money into your account if the stock price dips too low.
This is called a maintenance margin call. Failure to make a margin call
will result in having your stocks sold to cover the costs, even if they get
sold at a loss.
Paper Assets. Promissory notes and mortgages can also be used to
secure loans. You can show the value of a note by showing the terms of
the note and proof of performance. Likewise, you can use account receivable and forward contracts to secure a line. The stronger your
proof of the payee’s performance is, the greater the value of the paper
asset.
Whole life insurance. You can borrow against the cash surrender value
of your whole life insurance policy, up to 95%. The rates are generally
very competitive since this is a secure investment for the insurance
company.
The third way to repay a lender -21
Ownership is shown through the deed, but the way value is shown depends upon the purpose and length of ownership. For residential real
estate, until the property is seasoned (held for a period of time, usually
one year) its value is assumed to be the sum of the acquisition costs
and capital improvements. To increase the value of real estate during
this period, your best option is to make capital improvements using a
rebate strategy. Rebates are an extremely common business practice.
It works like this: you have your contractor charge you his retail prices
for the improvements and give you a “good customer” rebate for some of
the costs. The full retail price is what is used for the value calculation.
After a property is seasoned, the value is most often shown by an
independent appraisal. Hence, one way to increase the value of the real
estate is to get a number of appraisals, and use the best one. Do not
inflate appraisals, simply get a second or third opinion and use the most
favorable one. You can also show the value, much like an appraiser
does, by providing your own market comparables. These are other
houses with similar features that have sold in your area recently.
Once real property is valued, the lender will
only take a portion of that value to determine
the value of the asset as collateral. Typically
their lending limits set this at 70% for real
property. The exception may be your primary
residence.
Your lender doesn’t want to assume the risk
of giving you access to too much of your
collateral’s equity. If you have borrowed 100% of an asset’s value, it costs you nothing to cut your losses and
“walk away” from the asset if you fall upon financial difficulties.
Lenders are willing to increase that risk with your primary residence
because moving from your home is a tougher decision to make.
Rental real estate can also be valued using the income method. There
are locally varying formulas that are used to determine the value of the
property as an income property. The rents can be used to determine
another C—Capacity.
estate, until the property is seasoned (held for a period of time, usually
one year) its value is assumed to be the sum of the acquisition costs
and capital improvements. To increase the value of real estate during
this period, your best option is to make capital improvements using a
rebate strategy. Rebates are an extremely common business practice.
It works like this: you have your contractor charge you his retail prices
for the improvements and give you a “good customer” rebate for some of
the costs. The full retail price is what is used for the value calculation.
After a property is seasoned, the value is most often shown by an
independent appraisal. Hence, one way to increase the value of the real
estate is to get a number of appraisals, and use the best one. Do not
inflate appraisals, simply get a second or third opinion and use the most
favorable one. You can also show the value, much like an appraiser
does, by providing your own market comparables. These are other
houses with similar features that have sold in your area recently.
Once real property is valued, the lender will
only take a portion of that value to determine
the value of the asset as collateral. Typically
their lending limits set this at 70% for real
property. The exception may be your primary
residence.
Your lender doesn’t want to assume the risk
of giving you access to too much of your
collateral’s equity. If you have borrowed 100% of an asset’s value, it costs you nothing to cut your losses and
“walk away” from the asset if you fall upon financial difficulties.
Lenders are willing to increase that risk with your primary residence
because moving from your home is a tougher decision to make.
Rental real estate can also be valued using the income method. There
are locally varying formulas that are used to determine the value of the
property as an income property. The rents can be used to determine
another C—Capacity.
The third way to repay a lender -20
Collateral is the asset that is used to secure the loan. It is evidenced in
his role-play:
Paulie: Donna, may I borrow $20?
Donna: Yes, if I can hold your Boiler Room
Collector’s Edition DVD until you repay me.
Collateral is the pledged property that a lender may use to meet the loan
obligations in the event of default. Collateral is often called the third
way to pay. For the credit millionaire, lenders first look to the
nvestment for repayment, then to the borrower, then finally to the
iquidation of the property.
Then lenders will consider taking the property that’s pledged for the
oan to sell it and recover their losses.
When considering potential collateral, lenders ask the question, “If I
must foreclose, will the collateral cover the loan?” They will want to be
assured if the collateral is sold it will be simple and fast and sufficient to
cover the loan obligation. To ensure this, the lender will want the asset
to be adequately insured and may only loan a certain percentage of the
value of collateral. Lenders know from experience a borrower will try
much harder to make their payments if they have some financial risk or
actual cash loss at stake.
Lenders take the collateral in lieu of performance of the loan through
foreclosure or repossession. Familiar examples of this are a mortgage
foreclosure or automobile repossession.
There are many things that a lender can look to for collateral, from real
estate to the cash value of life insurance policies. When using
collateral, consider carefully the consequences of the worst-case
scenario if you cannot repay the loan. You may be forced to liquidate
and sell or give up your property. If your loan is too high compared to
the value of the property, the sale of the property may not be enough to
cover the obligations. In other words, you may lose your property and
still owe money.
Following are a few of the assets that can be collateralized and the
documents used to prove and improve their worth.
Cash. You can secure a loan with a certificate of deposit or bank
account. This is the only asset that you are likely to get a loan against
the full value of the deposit. In the event of default, the bank will
simply seize the funds for full satisfaction of the loan.
Real Estate. Real estate is the most commonly known form of collateral.
Real estate that already has debt on it can still be used as collateral.
For many people, the most tempting form of collateral you can use is
he equity in your home, that is, the difference between your home’s
alue and what you owe. Because it’s very easy to borrow against the
quity in your home, it’s often the first place that business owners and
nvestors go to get funds for their activities.
There are three main ways to tap into your home’s equity: through a
ash-out refinance, a second mortgage or a home equity line of credit
“HELOC”).
When you refinance your home, you borrow up to 80-90% of the value
of your home, the original mortgage is paid, you receive cash at the
closing and you have a new fully amortized mortgage placed on your
property. With a second mortgage, you get a lump sum payment for
your equity, and an additional fully amortized loan is added to your
home, leaving your original mortgage intact. A HELOC gives you access
to convert your equity to cash. However, you don’t have to take the
cash up front. Rather, you can use it as you need it. Additionally, you
usually make interest-only payments on the funds you are using. It’s
like a credit card that is secured by your home.
Ownership is shown through the deed, but the way value is shown ...[ continue to next post]
his role-play:
Paulie: Donna, may I borrow $20?
Donna: Yes, if I can hold your Boiler Room
Collector’s Edition DVD until you repay me.
Collateral is the pledged property that a lender may use to meet the loan
obligations in the event of default. Collateral is often called the third
way to pay. For the credit millionaire, lenders first look to the
nvestment for repayment, then to the borrower, then finally to the
iquidation of the property.
Then lenders will consider taking the property that’s pledged for the
oan to sell it and recover their losses.
When considering potential collateral, lenders ask the question, “If I
must foreclose, will the collateral cover the loan?” They will want to be
assured if the collateral is sold it will be simple and fast and sufficient to
cover the loan obligation. To ensure this, the lender will want the asset
to be adequately insured and may only loan a certain percentage of the
value of collateral. Lenders know from experience a borrower will try
much harder to make their payments if they have some financial risk or
actual cash loss at stake.
Lenders take the collateral in lieu of performance of the loan through
foreclosure or repossession. Familiar examples of this are a mortgage
foreclosure or automobile repossession.
There are many things that a lender can look to for collateral, from real
estate to the cash value of life insurance policies. When using
collateral, consider carefully the consequences of the worst-case
scenario if you cannot repay the loan. You may be forced to liquidate
and sell or give up your property. If your loan is too high compared to
the value of the property, the sale of the property may not be enough to
cover the obligations. In other words, you may lose your property and
still owe money.
Following are a few of the assets that can be collateralized and the
documents used to prove and improve their worth.
Cash. You can secure a loan with a certificate of deposit or bank
account. This is the only asset that you are likely to get a loan against
the full value of the deposit. In the event of default, the bank will
simply seize the funds for full satisfaction of the loan.
Real Estate. Real estate is the most commonly known form of collateral.
Real estate that already has debt on it can still be used as collateral.
For many people, the most tempting form of collateral you can use is
he equity in your home, that is, the difference between your home’s
alue and what you owe. Because it’s very easy to borrow against the
quity in your home, it’s often the first place that business owners and
nvestors go to get funds for their activities.
There are three main ways to tap into your home’s equity: through a
ash-out refinance, a second mortgage or a home equity line of credit
“HELOC”).
When you refinance your home, you borrow up to 80-90% of the value
of your home, the original mortgage is paid, you receive cash at the
closing and you have a new fully amortized mortgage placed on your
property. With a second mortgage, you get a lump sum payment for
your equity, and an additional fully amortized loan is added to your
home, leaving your original mortgage intact. A HELOC gives you access
to convert your equity to cash. However, you don’t have to take the
cash up front. Rather, you can use it as you need it. Additionally, you
usually make interest-only payments on the funds you are using. It’s
like a credit card that is secured by your home.
Ownership is shown through the deed, but the way value is shown ...[ continue to next post]
What you can’t see helps you—invisible debts -19
A third way to help your ratios is to consider invisible debts. Some
lenders don’t report your debt to the three major credit bureaus. Since
the debt doesn’t appear on your credit report, it won’t affect your credit
score. If you can move a balance from a reporting debt to a non-
reporting debt, this new invisible debt will improve your capacity as
calculated by your credit reporting records.
Lines of credit at local stores, personal notes and other sources of non-
reporting debt can help you by making your overall ratios smaller when
your credit report is the chief method the lender uses to determine your
financial worthiness. Obviously, if a more detailed balance sheet is
requested, those debts should appear there.
However, the danger with this strategy is building up too many debts
and becoming over-indebted. Remember what the credit report doesn’t
know can still hurt you. When you accumulate invisible debts, use
them wisely. By paying these debts on time you will improve your
character, your reputation for paying your debts and you gain a source
for meaningful referrals.
lenders don’t report your debt to the three major credit bureaus. Since
the debt doesn’t appear on your credit report, it won’t affect your credit
score. If you can move a balance from a reporting debt to a non-
reporting debt, this new invisible debt will improve your capacity as
calculated by your credit reporting records.
Lines of credit at local stores, personal notes and other sources of non-
reporting debt can help you by making your overall ratios smaller when
your credit report is the chief method the lender uses to determine your
financial worthiness. Obviously, if a more detailed balance sheet is
requested, those debts should appear there.
However, the danger with this strategy is building up too many debts
and becoming over-indebted. Remember what the credit report doesn’t
know can still hurt you. When you accumulate invisible debts, use
them wisely. By paying these debts on time you will improve your
character, your reputation for paying your debts and you gain a source
for meaningful referrals.
Saturday, September 16, 2006
Increase the depth and breadth of your income -18
To develop depth your goal is to earn more income from each of your
current sources. You can develop expertise or get training for your job
or profession that entitles you to better pay.
Increase the depth of your passive income by finding higher interest
paying investments or raising the rent on your rental properties. Move
your mutual funds or non-dividend paying stocks to those that pay
dividends.
Increase the breadth of your income
For breadth, seek out multiple streams of income to increase the
number of sources of repayment. You can develop enough expertise in a
field to become a highly paid employee or consultant, or use that
expertise to write a book, create an information product or conduct
seminars.
Develop and diversify new classes of income producing assets. Consider
dividend paying stocks, bonds or real estate.
For a business loan, lenders determine capacity by looking not only to
the business’s financial projections but also to your personal ability to
repay the loan if the business does not work out as planned. They will
want to know if you have other income (investments, a working spouse,
royalties, pensions, etc.) to help you repay the loan if necessary.
Lenders will want to know the answers to questions such as: if the
business fails, will you be able to return to your present or previous job?
Do you have other skills that could produce income? Be prepared to
provide solid answers to these questions and be able to offer real
evidence to support your answers.
To improve business capacity, increase the products and services that
your business provides. Look for turnkey systems that build off of what
your business already does. If you are a construction company,
consider hiring a certified home inspector in the business. If you own
rental real estate, install a coin operated laundry or vending machine.
With a retail shop, consider candy vending just inside the door, or a
mechanical ride by the entrance.
current sources. You can develop expertise or get training for your job
or profession that entitles you to better pay.
Increase the depth of your passive income by finding higher interest
paying investments or raising the rent on your rental properties. Move
your mutual funds or non-dividend paying stocks to those that pay
dividends.
Increase the breadth of your income
For breadth, seek out multiple streams of income to increase the
number of sources of repayment. You can develop enough expertise in a
field to become a highly paid employee or consultant, or use that
expertise to write a book, create an information product or conduct
seminars.
Develop and diversify new classes of income producing assets. Consider
dividend paying stocks, bonds or real estate.
For a business loan, lenders determine capacity by looking not only to
the business’s financial projections but also to your personal ability to
repay the loan if the business does not work out as planned. They will
want to know if you have other income (investments, a working spouse,
royalties, pensions, etc.) to help you repay the loan if necessary.
Lenders will want to know the answers to questions such as: if the
business fails, will you be able to return to your present or previous job?
Do you have other skills that could produce income? Be prepared to
provide solid answers to these questions and be able to offer real
evidence to support your answers.
To improve business capacity, increase the products and services that
your business provides. Look for turnkey systems that build off of what
your business already does. If you are a construction company,
consider hiring a certified home inspector in the business. If you own
rental real estate, install a coin operated laundry or vending machine.
With a retail shop, consider candy vending just inside the door, or a
mechanical ride by the entrance.
Credit Millionaire Ratios -17
Credit millionaires have one more ratio. In fact, this ratio is needed,
because most millionaires wouldn’t be able to pass the other two.
This ratio is reserved for individuals with significant investments or
businesses. Even small businesses get the benefit of using the credit
millionaire ratio—the Debt Coverage ratio.
The Debt Coverage Ratio is your total income from all sources minus
operating expenses. The difference with the ratio for the credit
millionaires and the consumer ratios is the consumer ratios first look to
the borrower’s income for repayment then to the secondary sources.
The credit millionaire ratio considers the net operating from your assets
as the primary method of payment for the debt on those assets. This
ratio puts the borrower’s earned income secondary to the income from
the assets. With the debt coverage ratio, the value of the income from
those assets is generally not reduced, as is rental property income for
an individual borrower.
A Debt Coverage Ratio of 1.0 represents break even cash flow, when the
net operating income from an investment or business is equal to the
debt coverage. The higher the number over 1.0, the better the ratio is.
A debt coverage ratio of 2.0 suggests that the monthly income from the
property is twice the payment on the debt. Lower than 1.0 means that
the income from the property isn’t enough to support the monthly loan
payments.
There are many documents which can be used to show your capacity.
Some are:
Income, W2s or 1099s, check stubs Tax Returns
Court orders for garnishment or support Rent rolls or leases
Royalty agreements Work history
Promissory notes with proof of payments
You can increase your capacity by widening the gap between your
income and expenses. You do this by both increasing your income and
reducing your expenses. Reducing your expenses is not as easy, but
well worth the efforts. We have all heard the axiom, “a penny saved is a
penny earned.” But a penny saved is really MORE than a penny
earned.
Consider this: every dollar that you want to spend, you must first earn.
When you earn income, whether through your job, business, or
investments, you must pay income tax on those earnings before you can
spend them for a non-business expense. So in order to spend $1.00,
you need to earn much more than that.
To calculate how much money you need to earn to spend $1.00, you
add your marginal tax rate (we’ll use 28% for this example) with the
15% tax for social security, Medicare, etc, resulting in a total tax of
43%. Which means you get to spend only 57% of what you earn. To get
the amount you need to spend $1.00, divide it by 57%. You see that an
individual in the 28% tax bracket needs to earn $1.75 to have $1.00 to
spend.
Thus it’s always better to decrease your expenses
than increase your income by the same amount.
What you really want to do is both.
Generally easier than decreasing your expenses is
increasing your capacity by increasing the depth
and breadth of your income.
because most millionaires wouldn’t be able to pass the other two.
This ratio is reserved for individuals with significant investments or
businesses. Even small businesses get the benefit of using the credit
millionaire ratio—the Debt Coverage ratio.
The Debt Coverage Ratio is your total income from all sources minus
operating expenses. The difference with the ratio for the credit
millionaires and the consumer ratios is the consumer ratios first look to
the borrower’s income for repayment then to the secondary sources.
The credit millionaire ratio considers the net operating from your assets
as the primary method of payment for the debt on those assets. This
ratio puts the borrower’s earned income secondary to the income from
the assets. With the debt coverage ratio, the value of the income from
those assets is generally not reduced, as is rental property income for
an individual borrower.
A Debt Coverage Ratio of 1.0 represents break even cash flow, when the
net operating income from an investment or business is equal to the
debt coverage. The higher the number over 1.0, the better the ratio is.
A debt coverage ratio of 2.0 suggests that the monthly income from the
property is twice the payment on the debt. Lower than 1.0 means that
the income from the property isn’t enough to support the monthly loan
payments.
There are many documents which can be used to show your capacity.
Some are:
Income, W2s or 1099s, check stubs Tax Returns
Court orders for garnishment or support Rent rolls or leases
Royalty agreements Work history
Promissory notes with proof of payments
You can increase your capacity by widening the gap between your
income and expenses. You do this by both increasing your income and
reducing your expenses. Reducing your expenses is not as easy, but
well worth the efforts. We have all heard the axiom, “a penny saved is a
penny earned.” But a penny saved is really MORE than a penny
earned.
Consider this: every dollar that you want to spend, you must first earn.
When you earn income, whether through your job, business, or
investments, you must pay income tax on those earnings before you can
spend them for a non-business expense. So in order to spend $1.00,
you need to earn much more than that.
To calculate how much money you need to earn to spend $1.00, you
add your marginal tax rate (we’ll use 28% for this example) with the
15% tax for social security, Medicare, etc, resulting in a total tax of
43%. Which means you get to spend only 57% of what you earn. To get
the amount you need to spend $1.00, divide it by 57%. You see that an
individual in the 28% tax bracket needs to earn $1.75 to have $1.00 to
spend.
Thus it’s always better to decrease your expenses
than increase your income by the same amount.
What you really want to do is both.
Generally easier than decreasing your expenses is
increasing your capacity by increasing the depth
and breadth of your income.
Consumer Credit Ratios -16
Lenders can’t tell how much you earn from your credit report, they rely
on the earnings figures that you report to them. Looking at your credit
report tells lenders only what you owe and how much your monthly
payments are on the accounts that are reported. They compare your
earnings with those monthly payments to come up with the debt-to-
income ratio. Most lenders want to see that your total monthly
obligations don’t exceed 50% of your pre-tax income.
The second standard ratio is the housing expense ratio. This one is
specifically used when purchasing a home loan. The lender will first
look to see that your debt-to-income ratio doesn’t exceed their limits,
then will caluclate your housing expense ratio. This is the comparision
of your monthly mortgage payment for the proposed mortgage compared
with your pre-tax income. The standard is that your mortgage payment
should not exceed 30% of your total income.
on the earnings figures that you report to them. Looking at your credit
report tells lenders only what you owe and how much your monthly
payments are on the accounts that are reported. They compare your
earnings with those monthly payments to come up with the debt-to-
income ratio. Most lenders want to see that your total monthly
obligations don’t exceed 50% of your pre-tax income.
The second standard ratio is the housing expense ratio. This one is
specifically used when purchasing a home loan. The lender will first
look to see that your debt-to-income ratio doesn’t exceed their limits,
then will caluclate your housing expense ratio. This is the comparision
of your monthly mortgage payment for the proposed mortgage compared
with your pre-tax income. The standard is that your mortgage payment
should not exceed 30% of your total income.
When Your Out Of Pocket Exceeds Your Income-Downfall Starts-15
Capacity is simply your ability to comfortably repay the loan. It can be
shown in this role-play:
Paulie: Donna, may I borrow $20?
Donna: How quickly can you easily repay it?
Capacity is reflective of your income. Your loan officer will scrutinize
your ability to repay a loan by looking at your employment and salary.
They want to see a long and stable employment history. Stability also
includes whether your occupation is riddled with industry-wide or
seasonal lay-offs.
Since capacity is that it is your ability to comfortably repay your debt
obligations, lenders will compare your total expenses with your income.
If your present debt expense is too great a percentage of your monthly
income, you may be denied credit because you don’t ratio.
Owen returned the phone to the cradle. “Fran, we didn’t
get the loan.”
After a long pause Fran asked why. Owen explained that
their current debt payments were too high. Even though
the refinance would allow them to pay some of the bills, and ultimately
they would have lower monthly payments and be paying a lower interest
rate, the mortgage company said the numbers still didn’t work.
“I may be able to pick up a few more hours a week at the store”, she
offered.
“No, we’ll just apply for another credit card. There should be a pre-
approved card application in the mail in a few days. We seem to be
getting them every week or so. In the meantime, we’ll have to cut back
a little around here. I don’t understand why the numbers didn’t work.
The company said something about our monthly payments being too
high compared to our income...”
There are a couple of key ratios that lenders look to when making a
credit decision. The first is the Debt-to-Income ratio. This ratio
considers your overall monthly debt payment and compares it with your
monthly income.
shown in this role-play:
Paulie: Donna, may I borrow $20?
Donna: How quickly can you easily repay it?
Capacity is reflective of your income. Your loan officer will scrutinize
your ability to repay a loan by looking at your employment and salary.
They want to see a long and stable employment history. Stability also
includes whether your occupation is riddled with industry-wide or
seasonal lay-offs.
Since capacity is that it is your ability to comfortably repay your debt
obligations, lenders will compare your total expenses with your income.
If your present debt expense is too great a percentage of your monthly
income, you may be denied credit because you don’t ratio.
Owen returned the phone to the cradle. “Fran, we didn’t
get the loan.”
After a long pause Fran asked why. Owen explained that
their current debt payments were too high. Even though
the refinance would allow them to pay some of the bills, and ultimately
they would have lower monthly payments and be paying a lower interest
rate, the mortgage company said the numbers still didn’t work.
“I may be able to pick up a few more hours a week at the store”, she
offered.
“No, we’ll just apply for another credit card. There should be a pre-
approved card application in the mail in a few days. We seem to be
getting them every week or so. In the meantime, we’ll have to cut back
a little around here. I don’t understand why the numbers didn’t work.
The company said something about our monthly payments being too
high compared to our income...”
There are a couple of key ratios that lenders look to when making a
credit decision. The first is the Debt-to-Income ratio. This ratio
considers your overall monthly debt payment and compares it with your
monthly income.
Creditor’s Security And Credit-14
Character can also be demonstrated by stability. Your creditor will
definitely look at things that don’t factor into your credit score
calculation at all. Whether job security is a reality or a myth in today’s
times, it’s still a very real factor in the lending decision. They want to
know that you are a stable credit risk.
Lenders will be interested in knowing that you own your own home.
Homeowners, as far as lenders are concerned, are more credit worthy
than renters. Lenders presume that homeowners understand financial
obligations and are accustomed to making their monthly payments.
Lenders presume that homeowners are more responsible in matters of
long-term employment and commitments. Owning real estate in your
community will indicate a level of commitment and stability that lenders
want to see.
Lenders are very interested in your line of work, because your
profession is also an indication of stability. Certain jobs are more
desirable to a lender than others, often with a bias towards professional and managerial jobs and away from skilled labor and clerical positions.
In reviewing your application, lenders will also look to your length of
time at your current place of employment. Even in a poor economy
where the concept of job security is a joke, lenders will want to see that
you’ve been in your current job for several years. If you’ve changed jobs
recently, they will want an explanation why the move took place. Since
they are lenders, a greater salary is always a sufficient reason. A
change inside the same industry or with a title change may be seen
favorably, even if it isn’t.
Lenders want to know things such as whether you have a savings
account. People with savings accounts are at least thinking about
saving their money. People with savings accounts with balances are
demonstrating that they don’t spend all they make. If you keep all of
your cash in one checking account, consider portioning some of it off
and opening a savings or money market account. Even a small savings
account will communicate to the lender that you have the ability to save
money, a specific plan to do so, and some evidence of financial
responsibility. Your lender will want to see that you have had your
checking and savings accounts for some time, and without unusual
fluctuations.
Your character, combined with income, are the only factors considered
in most consumer lending decisions. Credit card lenders and other
retailers only want to know the information on your credit report and
the amount of money you earn. Character is important for employers as
well. Especially when applying for a job handling money, lenders want
to know you aren’t in credit trouble, so that you won’t be desperate and
dishonest.
The Relation Between Your Character And Credit-13
When the late American industrialist J.P. Morgan was asked what he
considered the best bank collateral, he responded with a single word:
"character."
The primary factor in a positive credit decision is your personal
character.
The essence of character can be found in this short role-play.
Paulie: Donna, my dear friend, may I borrow $20?
Donna: Sure, anything for you
Some people define character as who you are when no one is looking.
In the case of your credit, character is not only who you are, but also
who you have been in the past. It is said that the best prediction of
today’s weather is what it was yesterday. Similarly, the best predictor of
your future credit behavior is your past behavior with your credit
accounts.
Character is your financial reputation with people and the marketplace.
To the potential lender, solid character means that you will make every
possible effort to repay the loan and avoid taking out loans that are
beyond your means.
The most common indication of your character is your credit score and
credit history as discovered through checks with the credit bureaus.
Character is also demonstrated through good credit referrences,
referrals and your contributions over time to the community.
In addition, most lenders will make a personal judgment of your character based on your presentation over the phone or in person. The
lender will usually sit down across the table from you and make an
assessment regarding his or her comfort level with you as a borrower. If
the words "bad risk" come to mind, you may not get a loan regardless of
how high your credit score is. This is not to say that a lender can make
a credit decision based on your physical appearance alone—thankfully,
we have credit protection laws that protect us against discrimination
based on race, gender or disabilities.
Character is a combination of objective measures, like your credit
history and score, and subjective judgment like your reputation and the
lender’s impression of you. There are techniques that can be used to
improve both the objective and subjective measures of character.
To improve the objective measures like the credit score and credit
history, start today to acquire more credit and use it responsibly. The
more credit that you have that is open and used responsibly, the more
your credit score will go up. If you have no credit at the moment, you are just a few short years away from the highest rated credit. If you have some “dings” or small mistakes in your credit history, you will want to engage in some credit repair.
For the subjective measures, the key to improvement is to build relationships and seek referrals and references As you think about your personal and business history, ask yourself who you have done business with in the past that can vouch for your timely payment history.
Even if a business doesn’t report to credit agencies, they can be positive
references for you. Send each of them a letter using the sample
reference letters in the appendix. Remind them of their pleasant
transaction with you and let them know you will be using them as a
credit reference. Give them the option of calling you if they would prefer
you didn’t.
This is a valuable tip. Always make the action on their part be your
least desired result. You get more “yeses” by default that way. Another
option is to ask the business to send you a letter of how you always pay
as agreed.
Referrals are a powerful example of your character. When people are in
business, they don’t give positive referrals lightly. The best kind of
referral is one from a person who is in a very similar business and has a
long-term relationship with the person to whom you are being referred.
For example, a direct banker-to-banker referral is far more powerful
than a mortgage broker to banker referral.
Thursday, September 14, 2006
5 Characteristics Of All Credit-12
No matter what type of loan you consider, all lending decisions are based on five, and only five, criteria. To the credit industry insiders, these are known as the Five C’s of Credit. They are: character, capacity, collateral, conditions and capital. I call them “All Star Credit” and use
a star to help us remember the five aspects.
The 5 C’s are time-tested criteria all lenders use (whether they know it or not!) to make their lending decisions. Everything that can affect the credit decision is encompassed in these five broad categories, so we’ll spend some time going over each one in detail. By understanding each of these from the lender’s viewpoint, you can anticipate your strengths and weaknesses as they may appear on your application to a potential lender.
You needn’t be perfect or even strong on each of the 5 C’s. Strength in one arena will support and substitute weakness in other areas. For example, excellent capital (what you own) can make up for inadequate collateral. If the lender’s conditions are ripe for lending, the particular
borrower almost doesn’t matter.
However, by applying my All Star Credit system, you will be able to make each point of this star shine as brightly as possible. In the next few articles I will delve into these five aspects in detail, first giving a short role-play to help you identify the factor. Then I will define the C, and show some examples of how to prove or demonstrate that factor. Finally, we’ll offer suggestions to build that element of your personal or your business’ credit.
I'll discuss more on tomorrow.Thank You.
a star to help us remember the five aspects.
The 5 C’s are time-tested criteria all lenders use (whether they know it or not!) to make their lending decisions. Everything that can affect the credit decision is encompassed in these five broad categories, so we’ll spend some time going over each one in detail. By understanding each of these from the lender’s viewpoint, you can anticipate your strengths and weaknesses as they may appear on your application to a potential lender.
You needn’t be perfect or even strong on each of the 5 C’s. Strength in one arena will support and substitute weakness in other areas. For example, excellent capital (what you own) can make up for inadequate collateral. If the lender’s conditions are ripe for lending, the particular
borrower almost doesn’t matter.
However, by applying my All Star Credit system, you will be able to make each point of this star shine as brightly as possible. In the next few articles I will delve into these five aspects in detail, first giving a short role-play to help you identify the factor. Then I will define the C, and show some examples of how to prove or demonstrate that factor. Finally, we’ll offer suggestions to build that element of your personal or your business’ credit.
I'll discuss more on tomorrow.Thank You.
Types Of Credits And You-11
Lending takes on a variety of forms, from the simplest, “May I borrow $20” between friends to a much more complex transaction.
The above example represents the type of loan request from someone who displays the utmost in credibility. There is no talk of interest, repayment schedules or terms. This is a loan between friends.
The next level of loan is represented by the “what’s in it for me” mentality, and that is a loan with interest. Similar to the previous example, this loan doesn’t discuss the length of time of the loan or other terms. It’s the kind of loan givento people who are trying to profit and have a high degree of trust in their borrower. Signature lines of credit at a bank are a good example of this kind of loan.
As the level of trust decreases, the number and strictness of the loan’s terms will increase. Perhaps the lender will want a promise to pay by a definite date, then perhaps higher interest. Eventually the lender will want security for the loan in the form of valuable property that the lender can seize in the event the debt isn’t paid. At the lowest level of trust, the lender will want possession of the property. Pawn brokers take actual possession of the property in their shop, and can easily sell it if the borrower doesn’t pay the loan as agreed.
Regardless of the specific terms of a loan, all loans have four parts.
1. something borrowed
2. the costs of borrowing
3. the repayment instructions
4. the penalty for not following the instructions
The description of what is borrowed—a monetary amount in either a lump sum or as a credit line, but it could easily be any other item. There is the cost of the funds—in interest, finance charges, application fees, points and penalties. There is a payment plan—how much you will
pay, how often and for how long, and how the borrowed item will be returned. Finally, there is a provision for the penalties in the event that you don’t fulfill your promise to repay. Some loans ask for an additional term, security.
A secured loan is a loan that is backed by an asset, called collateral. For major purchases like automobiles, some states allow lenders to retain the rights of ownership to the property until you have paid for it in full. Other lenders use the property as additional security for the loan, and can force the sale of your property to satisfy their debt in the event you stop making payments.
An unsecured loan is known as a signature loan. It’s a credit line that is extended to you entirely based upon your credit worthiness. Credit cards are the most common example of an unsecured loan. If you don’t make your credit card payment, the company can’t come and take the items you purchased with the card.
For more information on how the monetary system works, read Modern Money Mechanics, published by the Chicago Federal Reserve Board.
Next time i'll discuss about 5 characteristics of all credit.
The above example represents the type of loan request from someone who displays the utmost in credibility. There is no talk of interest, repayment schedules or terms. This is a loan between friends.
The next level of loan is represented by the “what’s in it for me” mentality, and that is a loan with interest. Similar to the previous example, this loan doesn’t discuss the length of time of the loan or other terms. It’s the kind of loan givento people who are trying to profit and have a high degree of trust in their borrower. Signature lines of credit at a bank are a good example of this kind of loan.
As the level of trust decreases, the number and strictness of the loan’s terms will increase. Perhaps the lender will want a promise to pay by a definite date, then perhaps higher interest. Eventually the lender will want security for the loan in the form of valuable property that the lender can seize in the event the debt isn’t paid. At the lowest level of trust, the lender will want possession of the property. Pawn brokers take actual possession of the property in their shop, and can easily sell it if the borrower doesn’t pay the loan as agreed.
Regardless of the specific terms of a loan, all loans have four parts.
1. something borrowed
2. the costs of borrowing
3. the repayment instructions
4. the penalty for not following the instructions
The description of what is borrowed—a monetary amount in either a lump sum or as a credit line, but it could easily be any other item. There is the cost of the funds—in interest, finance charges, application fees, points and penalties. There is a payment plan—how much you will
pay, how often and for how long, and how the borrowed item will be returned. Finally, there is a provision for the penalties in the event that you don’t fulfill your promise to repay. Some loans ask for an additional term, security.
A secured loan is a loan that is backed by an asset, called collateral. For major purchases like automobiles, some states allow lenders to retain the rights of ownership to the property until you have paid for it in full. Other lenders use the property as additional security for the loan, and can force the sale of your property to satisfy their debt in the event you stop making payments.
An unsecured loan is known as a signature loan. It’s a credit line that is extended to you entirely based upon your credit worthiness. Credit cards are the most common example of an unsecured loan. If you don’t make your credit card payment, the company can’t come and take the items you purchased with the card.
For more information on how the monetary system works, read Modern Money Mechanics, published by the Chicago Federal Reserve Board.
Next time i'll discuss about 5 characteristics of all credit.
Every Dollar You Spend Is Credit-10
The credit system is a continuous cycle of borrowing and lending. All money is borrowed money. Even when you use your own cash, you are borrowing money—from yourself!
Spending money is borrowing from your funds available to purchase income-producing assets to get goods and services. The cost of those funds is the lost opportunity you could have gained had you invested the money.
Now before you start writing me letters about how your children really like to have dinner on the table, I’m not saying that you shouldn’t spend money!
It’s important to have food and shelter, transportation, and yes, even entertainment and luxury items. However, recognize that using funds for these purposes necessarily means they aren’t available for investing. It’s not a judgment on your personal spending habits to say that a
dollar saved is one that can’t be invested. It’s an illustration of the simple fact that all dollars come from the same pool of money. To keep the credit cycle going, borrowers need to repay what they owe.
Every borrower who repays on time allows the lender to profit, which allows the lender to pay his or her own bills, which allows the lender’s lender to do the same. Thus when someone breaks the cycle by not paying as agreed, the entire system suffers.
The largest single lender in the country is the Federal Reserve Bank (“The Fed”). The Fed loans money to national, state and local banks at a nationally published interest rate called the Discount Rate. The Discount Rate is always lower than Prime Rate—which is the rate banks
charge their best customers. The Prime Rate is usually reserved for wealthy individuals and major corporations. Other borrowers are offered an interest rate higher than prime. How much higher varies depending on the type of loan and the borrower’s credit. Who lends money to the Fed? We, the consumers do. When the Federal Reserve needs money, they either print more (I don’t recommend this strategy for you) or issue bonds. When the government issues bonds, they are collecting the money they’ve released into the system back. Consumers buy bonds as an investment strategy—which the government guarantees. The government pays interest on these bonds—the same dollars they released into circulation by printing money. The Fed can make as many of these loans as they feel is necessary for the overall economic strategy—and can do so without a credit check.
Next time i'll discuss about the faces i mean types of credit.
Spending money is borrowing from your funds available to purchase income-producing assets to get goods and services. The cost of those funds is the lost opportunity you could have gained had you invested the money.
Now before you start writing me letters about how your children really like to have dinner on the table, I’m not saying that you shouldn’t spend money!
It’s important to have food and shelter, transportation, and yes, even entertainment and luxury items. However, recognize that using funds for these purposes necessarily means they aren’t available for investing. It’s not a judgment on your personal spending habits to say that a
dollar saved is one that can’t be invested. It’s an illustration of the simple fact that all dollars come from the same pool of money. To keep the credit cycle going, borrowers need to repay what they owe.
Every borrower who repays on time allows the lender to profit, which allows the lender to pay his or her own bills, which allows the lender’s lender to do the same. Thus when someone breaks the cycle by not paying as agreed, the entire system suffers.
The largest single lender in the country is the Federal Reserve Bank (“The Fed”). The Fed loans money to national, state and local banks at a nationally published interest rate called the Discount Rate. The Discount Rate is always lower than Prime Rate—which is the rate banks
charge their best customers. The Prime Rate is usually reserved for wealthy individuals and major corporations. Other borrowers are offered an interest rate higher than prime. How much higher varies depending on the type of loan and the borrower’s credit. Who lends money to the Fed? We, the consumers do. When the Federal Reserve needs money, they either print more (I don’t recommend this strategy for you) or issue bonds. When the government issues bonds, they are collecting the money they’ve released into the system back. Consumers buy bonds as an investment strategy—which the government guarantees. The government pays interest on these bonds—the same dollars they released into circulation by printing money. The Fed can make as many of these loans as they feel is necessary for the overall economic strategy—and can do so without a credit check.
Next time i'll discuss about the faces i mean types of credit.
The Time Frame For Building Credit-9
The one ingredient in the credit calculation that I can’t help you with is your length of credit history. Credit building takes time. The good news is, if it isn’t getting worse, it’s definitely getting better. Every month that goes by where:
1) you pay your bills on time, every time, and
2) you don’t do anything to make your credit worse, results in
better credit.
If you have no credit, expect it to take one to two years for you to develop enough credit to qualify for a major purchase.
Once your credit repair activities have removed all the impactful negative information from your credit reports, and the situation or bad habits that caused the credit crisis are under control, you will find that the credit building process is identical to the process for those with no credit.
In either case, you will start to grow and improve your credit. You will ensure that temporary hardships are planned for through proper budgeting. Your credit scores will gradually increase over time.
Improving your credit worthiness will help in other areas too. Not only will you get more credit at better rates from lenders, but also better employment opportunities and lower insurance rates.
All of the strategies you encounter in this blog apply for you individually and for your business. Building credit involves the application of the same principles, whether you have new or old credit, good or poor, business or personal. These strategies work for everyone and every business.
Once you’ve grown your credit, my final articles will tell you how to parlay your good credit into millions, making money all throughout the process. As a credit millionaire, you know it’s easier to borrow $10-million than it is to earn it on your job or save it. And when you borrow
those funds to buy assets that both pay for themselves and appreciate, you’ve discovered the secret solution to the world’s wealth.
Next time i'll discuss about Why using your own cash is also credit!
1) you pay your bills on time, every time, and
2) you don’t do anything to make your credit worse, results in
better credit.
If you have no credit, expect it to take one to two years for you to develop enough credit to qualify for a major purchase.
Once your credit repair activities have removed all the impactful negative information from your credit reports, and the situation or bad habits that caused the credit crisis are under control, you will find that the credit building process is identical to the process for those with no credit.
In either case, you will start to grow and improve your credit. You will ensure that temporary hardships are planned for through proper budgeting. Your credit scores will gradually increase over time.
Improving your credit worthiness will help in other areas too. Not only will you get more credit at better rates from lenders, but also better employment opportunities and lower insurance rates.
All of the strategies you encounter in this blog apply for you individually and for your business. Building credit involves the application of the same principles, whether you have new or old credit, good or poor, business or personal. These strategies work for everyone and every business.
Once you’ve grown your credit, my final articles will tell you how to parlay your good credit into millions, making money all throughout the process. As a credit millionaire, you know it’s easier to borrow $10-million than it is to earn it on your job or save it. And when you borrow
those funds to buy assets that both pay for themselves and appreciate, you’ve discovered the secret solution to the world’s wealth.
Next time i'll discuss about Why using your own cash is also credit!
Perfect Credit Report-8
The credit repair portions of this series of articles are important. Once you have a credit record, you are
sure to need the strategies. It’s estimated that up to 82% of credit reports contain factual errors. One in four contains an error that will result in the denial of credit. While mistakes often find their way onto your report, they don’t seem to find their way off—it’s up to you.
If you are building new credit, in the beginning it won’t be particularly easy. This is a society based on the credit system. Getting ahead in a credit society is hard for those who have been denied access to the system. However, a careful application of my course will allow your
credit to grow in a balanced fashion.
For young readers, college is the place where you will likely learn to build credit. Routinely college campuses are littered with solicitations from credit card companies, looking to build loyalty with a target market that has the highest on-average discretionary spending. They
want to build that loyalty early, hoping that you remain with them for life. Indeed, I still have a credit card that I applied for while a college student.
Because these cards are targeted to new credit users, the applicants are expected to have small or no credit history. These are some of the easiest credit cards to get for that reason. If you are a college student building credit apply today for one of these cards. Then use it wisely by
following the formula I’ll provide later in this series of articles for proper credit useage.
There is a bit of bad news about the credit restoration and building process. It doesn’t happen fully overnight.
Next time i'll discuss the time frame of building credit.
sure to need the strategies. It’s estimated that up to 82% of credit reports contain factual errors. One in four contains an error that will result in the denial of credit. While mistakes often find their way onto your report, they don’t seem to find their way off—it’s up to you.
If you are building new credit, in the beginning it won’t be particularly easy. This is a society based on the credit system. Getting ahead in a credit society is hard for those who have been denied access to the system. However, a careful application of my course will allow your
credit to grow in a balanced fashion.
For young readers, college is the place where you will likely learn to build credit. Routinely college campuses are littered with solicitations from credit card companies, looking to build loyalty with a target market that has the highest on-average discretionary spending. They
want to build that loyalty early, hoping that you remain with them for life. Indeed, I still have a credit card that I applied for while a college student.
Because these cards are targeted to new credit users, the applicants are expected to have small or no credit history. These are some of the easiest credit cards to get for that reason. If you are a college student building credit apply today for one of these cards. Then use it wisely by
following the formula I’ll provide later in this series of articles for proper credit useage.
There is a bit of bad news about the credit restoration and building process. It doesn’t happen fully overnight.
Next time i'll discuss the time frame of building credit.
Credit Rejuvination-7
Credit rejuvination is similar to restoring an old house. You need to repair a few dings in the walls or woodwork and apply a fresh coat of paint. Some people need to build the house in the first place, starting with the foundation.
Credit Rejuvination is desired for three reasons:
1) starting fresh after a financial crisis
2) recovering from the “all debt is bad” mindset and
building credit
3) to remove derrogatory errors
You may have no credit history at all. Young readers in high school or college are just getting exposed to credit and their first experiences with debt. They don’t yet have a record with the credit bureaus.
Some readers may be well into their adult life and still have no credit. Consequently, you
must pay cash for everything. This is a classic profile of the person who has the “all debt is
bad” mindset. I often hear people say, “I have good credit, I’ve never bought anything on
credit.” Unfortunately, no credit score is just asbad as a poor credit score, and it’s often worse.
If you apply for a loan and have no credit history, the lender has to trust you enough to believe that you will pay it back. He has no references that support your creditworthiness.
Frequently, the ones who believe that any debt is bad debt have often encountered a financial hardship in the past. Inevitably, there is an unpaid medical bill or utility bill that appears on their credit report. This can create the worst credit of all. The poorest credit scores occur
when an individual who has not worked to develop any positive credit reporting accounts has one or two negative items on their credit report.
In many cases, having no score will mean you don’t meet the lending guidelines of the bank, disqualifying you for any loan. If you do get the loan, the lender is taking a huge risk and will charge you higher than prime market rate interest.
If you are over 25 years of age and have no previous credit history, thered flags will fly in the lender's mind. Where has this person been? Can he or she handle money? Is this a case of identity fraud? For lenders, in the business of lending credit, it’s hard to fathom that people are able to get through life without using credit—let alone prefeto live that way. They wonder what has changed to be presented with credit application now. To a lender the lack of credit use confuses them—and a confused mind says “no.”
The final section of this manual addresses these issues. You’ll learn the proven systems to build your credit and grow it to the credit wealthiness of a millionaire.
The good news is, if you have no credit yet, you need only to focus on developing a credit history, and doing so wisely.
Next time i'll discuss about perfect credit record.
Credit Rejuvination is desired for three reasons:
1) starting fresh after a financial crisis
2) recovering from the “all debt is bad” mindset and
building credit
3) to remove derrogatory errors
You may have no credit history at all. Young readers in high school or college are just getting exposed to credit and their first experiences with debt. They don’t yet have a record with the credit bureaus.
Some readers may be well into their adult life and still have no credit. Consequently, you
must pay cash for everything. This is a classic profile of the person who has the “all debt is
bad” mindset. I often hear people say, “I have good credit, I’ve never bought anything on
credit.” Unfortunately, no credit score is just asbad as a poor credit score, and it’s often worse.
If you apply for a loan and have no credit history, the lender has to trust you enough to believe that you will pay it back. He has no references that support your creditworthiness.
Frequently, the ones who believe that any debt is bad debt have often encountered a financial hardship in the past. Inevitably, there is an unpaid medical bill or utility bill that appears on their credit report. This can create the worst credit of all. The poorest credit scores occur
when an individual who has not worked to develop any positive credit reporting accounts has one or two negative items on their credit report.
In many cases, having no score will mean you don’t meet the lending guidelines of the bank, disqualifying you for any loan. If you do get the loan, the lender is taking a huge risk and will charge you higher than prime market rate interest.
If you are over 25 years of age and have no previous credit history, thered flags will fly in the lender's mind. Where has this person been? Can he or she handle money? Is this a case of identity fraud? For lenders, in the business of lending credit, it’s hard to fathom that people are able to get through life without using credit—let alone prefeto live that way. They wonder what has changed to be presented with credit application now. To a lender the lack of credit use confuses them—and a confused mind says “no.”
The final section of this manual addresses these issues. You’ll learn the proven systems to build your credit and grow it to the credit wealthiness of a millionaire.
The good news is, if you have no credit yet, you need only to focus on developing a credit history, and doing so wisely.
Next time i'll discuss about perfect credit record.
Wednesday, September 13, 2006
Five Most Common Reasons You'll Be Denied Credit-6
There are various reasons that a lender will deny credit. The most
common reasons are the five that follow.
1. The primary reason that credit is denied is that the applicant
has a history of late payments, bad debts, or legal judgments.
Failure to treat credit responsibility in the past is seen as
unequivacable evidence that you will likely default on a loan.
2. The second largest reason for the denial of credit is the
applicant submitted an incomplete application. This also
includes the incidents of discrepancies between the
information on your application and in your credit report, such
as total debt or different addresses.
3. The applicant has too much debt when weighed against their
income. Lenders will want to see an applicant that has a good
balance between their income and their debt.
4. The forth largest reason why lenders deny credit is due to one
of the reasons listed above...but it’s an error in the credit file!
It is said that one in four credit reports contain factual errors
that could lead to a denial of credit.
5. The final reason that credit is denied is for insufficient credit
history. Either the applicant has no previous credit file, or
credit that is too young with too few accounts. Lenders
consider people without a track record of responsibility to be
too much of a risk.
Many other people sink into a credit crisis because of a temporary
hardship. Perhaps they had a layoff from their job, or prolonged
hospitalization of themselves or a loved one which caused a temporary
strain on their budget. Perhaps a distaster struck their underinsured
home. For these individuals, fixing the problem means finding ways to
provide a safety net for themselves in the event of more bad luck.
Insurance, cash reserves and passive income streams will help.
A good rule of thumb is to set aside three to six months of living
expenses in a cash account to cover these setbacks. Next blogpost on
Finacial Planning will tell you how to create a cushion to ensure heathy
credit when your personal economy falters.
Tomorrow I'll discuss about credit rejuvination.
common reasons are the five that follow.
1. The primary reason that credit is denied is that the applicant
has a history of late payments, bad debts, or legal judgments.
Failure to treat credit responsibility in the past is seen as
unequivacable evidence that you will likely default on a loan.
2. The second largest reason for the denial of credit is the
applicant submitted an incomplete application. This also
includes the incidents of discrepancies between the
information on your application and in your credit report, such
as total debt or different addresses.
3. The applicant has too much debt when weighed against their
income. Lenders will want to see an applicant that has a good
balance between their income and their debt.
4. The forth largest reason why lenders deny credit is due to one
of the reasons listed above...but it’s an error in the credit file!
It is said that one in four credit reports contain factual errors
that could lead to a denial of credit.
5. The final reason that credit is denied is for insufficient credit
history. Either the applicant has no previous credit file, or
credit that is too young with too few accounts. Lenders
consider people without a track record of responsibility to be
too much of a risk.
Many other people sink into a credit crisis because of a temporary
hardship. Perhaps they had a layoff from their job, or prolonged
hospitalization of themselves or a loved one which caused a temporary
strain on their budget. Perhaps a distaster struck their underinsured
home. For these individuals, fixing the problem means finding ways to
provide a safety net for themselves in the event of more bad luck.
Insurance, cash reserves and passive income streams will help.
A good rule of thumb is to set aside three to six months of living
expenses in a cash account to cover these setbacks. Next blogpost on
Finacial Planning will tell you how to create a cushion to ensure heathy
credit when your personal economy falters.
Tomorrow I'll discuss about credit rejuvination.
Myths Affect On Your Credit -5
Continued from previous article..
The first myth is perhaps the most damaging. Credit card
companies will and do give credit cards to people who can’t
afford to pay the debt on them.
No one can depend on a lender to keep a buyer's spending within safe
and reasonable limits. The lender has no idea about your spending
habits since that information doesn’t directly appear on your credit
report. If you rent your home, that payment likely doesn’t show up on
your report. Likewise your food bill, entertainment expenses and
utilities don’t appear anywhere on that report. The lender only knows
the income you state on your application, and your debts which appear
on your credit report. Thus when credit is extended, it may not always
be in your best interest to use it.
Notice that most of the credit mythology relates to credit card use.
We’ll talk more about credit cards, exploding the myths and telling you
how to use cards properly, in the article Pick a Card, Any Card: The
Deal with Credit Cards.
Denial is not just a river in Egypt...
Sometimes your credit card applications will be denied. Credit will
usually be extended as long as a borrower has shown the ability to
repay in the past. Our credit system ensures that these borrowers will
be allowed to continue buying, even after they can no longer afford the
payments on their debt. Creditors, after all, are in the business of
lending, not rejecting applications! Despite this, once bad credit habits
start appearing on your credit report, lenders will deny your
application.
The first myth is perhaps the most damaging. Credit card
companies will and do give credit cards to people who can’t
afford to pay the debt on them.
No one can depend on a lender to keep a buyer's spending within safe
and reasonable limits. The lender has no idea about your spending
habits since that information doesn’t directly appear on your credit
report. If you rent your home, that payment likely doesn’t show up on
your report. Likewise your food bill, entertainment expenses and
utilities don’t appear anywhere on that report. The lender only knows
the income you state on your application, and your debts which appear
on your credit report. Thus when credit is extended, it may not always
be in your best interest to use it.
Notice that most of the credit mythology relates to credit card use.
We’ll talk more about credit cards, exploding the myths and telling you
how to use cards properly, in the article Pick a Card, Any Card: The
Deal with Credit Cards.
Denial is not just a river in Egypt...
Sometimes your credit card applications will be denied. Credit will
usually be extended as long as a borrower has shown the ability to
repay in the past. Our credit system ensures that these borrowers will
be allowed to continue buying, even after they can no longer afford the
payments on their debt. Creditors, after all, are in the business of
lending, not rejecting applications! Despite this, once bad credit habits
start appearing on your credit report, lenders will deny your
application.
Journey To Good Credit-4
The next step on your credit journey is to focus on the first prong and
build sound financial principles. There is a plethora of financial and
wealth-building advice at your disposal. Volumes have been written on
the topics of budgeting and financial planning alone. All of the
information available to you is right—and wrong!
Correct financial advice and planning information varies depending on
your goal. Without knowing your ultimate goal, writers can’t provide
specific advice and resort to generalities. Sometimes the general advice
is contrary to your goal of business building. This blog benefits
from the ability to know your goal—becoming a credit millionaire. We
can get in deep and detailed with the information you need to reach
that goal.
Next of this blog discusses the three pillars of credit wealthiness:
budgeting, bad debt reduction and credit card useage—all with the
ultimate goal in mind—becoming a credit millionaire. You’ll learn
proven strategies for bad debt reduction. You’ll discover that creating a
financial statement is not as scary as it may originally seem with our
sample net worth statement. You’ll learn 101 tips for living below your
means and much, much more.
After you’ve developed the skills to keep on the good credit path for
your entire life, the blog continues your journey, clearing the path to
becoming a credit millionaire with the rejuvination and repair of your
credit.
Credit crisis:
While some people are in need of credit repair because a temporary
hardship caused them to get behind in their payments, many people
get into a credit crisis because of a failure to be educated about the
effects of their credit decisions. They believe common credit mythology,
such as:
“The credit card company wouldn’t have given me a card if I
couldn’t handle it”
“The best way to build credit is to pay the minimum”
“I have such good credit, my credit card companies often
give me a payment holiday—I don’t have to make a payment
this month!”
“I can charge this now because I usually get a large tax
return check.”
“There’s nothing wrong with my credit report, I haven’t been
denied credit.”
Next time i'll discuss the myths affect on your credit.
build sound financial principles. There is a plethora of financial and
wealth-building advice at your disposal. Volumes have been written on
the topics of budgeting and financial planning alone. All of the
information available to you is right—and wrong!
Correct financial advice and planning information varies depending on
your goal. Without knowing your ultimate goal, writers can’t provide
specific advice and resort to generalities. Sometimes the general advice
is contrary to your goal of business building. This blog benefits
from the ability to know your goal—becoming a credit millionaire. We
can get in deep and detailed with the information you need to reach
that goal.
Next of this blog discusses the three pillars of credit wealthiness:
budgeting, bad debt reduction and credit card useage—all with the
ultimate goal in mind—becoming a credit millionaire. You’ll learn
proven strategies for bad debt reduction. You’ll discover that creating a
financial statement is not as scary as it may originally seem with our
sample net worth statement. You’ll learn 101 tips for living below your
means and much, much more.
After you’ve developed the skills to keep on the good credit path for
your entire life, the blog continues your journey, clearing the path to
becoming a credit millionaire with the rejuvination and repair of your
credit.
Credit crisis:
While some people are in need of credit repair because a temporary
hardship caused them to get behind in their payments, many people
get into a credit crisis because of a failure to be educated about the
effects of their credit decisions. They believe common credit mythology,
such as:
“The credit card company wouldn’t have given me a card if I
couldn’t handle it”
“The best way to build credit is to pay the minimum”
“I have such good credit, my credit card companies often
give me a payment holiday—I don’t have to make a payment
this month!”
“I can charge this now because I usually get a large tax
return check.”
“There’s nothing wrong with my credit report, I haven’t been
denied credit.”
Next time i'll discuss the myths affect on your credit.
Journey To Good Credit-3
This article alone contains everything you need to know to begin your
lifetime journey to good credit.
In my research for this blog and my Give Yourself the Credit seminar, I
learned that very few people ever fully utilize the information on wealth
and business building that they learn. Further investigation revealed it
wasn’t just with wealth and business building, but also with weight
loss, ballroom dancing—everything! It seems that while the information
is learned, it never gets to the point of being a habit and thus produce
the desired result.
You will find this blog is very different. You will discover the truth
about building and rejuvinating credit. The article evaluations will help
you take practical steps in the right direction—to good credit habits
and becoming a credit millionaire. Even when you reach your goal of
becoming a credit millionaire, you’ll continue to apply the strategies
you learn in this blog to maintain your credit millionaire status.
The Journey
The journey from credit repair to credit millioniare can be stated in a
simple four-step process.
1. thoroughly explore what credit is from the eyes of a lender
2. learn sound financial principles
3. correct errors on your credit report, restoring your perfect credit
4. using your good credit to build wealth
Sounds simple, doesn’t it? It really is that easy. But knowing what t
steps are is like knowing the title to a book—you have no idea what
nuances the story unfolds. Like a good novel, this blog takes you
on the journey to millionaire credit. Together we’ll walk through each
of those four steps—legs on your journey—learning the shortcuts and
pitfalls along the path. You’ll learn the resources you need to pack fo
the trip. Whenever you find it necessary to stray from the path to
explore an interesting cove or tree of life, I’ll be right here, waiting to
guide you further along your journey.
That journey starts with a deep understanding of the credit system.
The common credit advice focuses on improving your credit score.
While this is a fine approach if you are looking for good credit to buy
your home or automobile, it’s shortsighted when looking for millionair
credit. On some next articles of this blog explodes this consumer credit myth and
explores what lenders really look at when issuing credit.
You’ll discover the five factors in every lending decision, and how to
present those factors to a lender. I call this the All-Star Credit plan.
My business used these very five factors as the framework for our
business plan presentation to the bank that ultimately gave us a $5-
million asset-based credit line. Once we knew how to tell bankers wh
they wanted to know, the doors to the vault were opened for us. On
this journey, you too will learn how to crack the code to bank vaults.
Once you’ve trained for the trip by learning what credit really is and
how to appropriately demonstrate it, you are ready to work on your
credit heath.
Complete credit rejuvination and building efforts require a two-pronged
approach. First, you need to fix the behavior or circumstance that
resulted in bad or no credit, then you need to remove, soften or respond
to the evidence on your credit report. Each prong works hand-in-hand
to bring your credit to life and ensure that the credit damage doesn’t
recur.
Next time i'll discuss the second step of your good credit journey.
lifetime journey to good credit.
In my research for this blog and my Give Yourself the Credit seminar, I
learned that very few people ever fully utilize the information on wealth
and business building that they learn. Further investigation revealed it
wasn’t just with wealth and business building, but also with weight
loss, ballroom dancing—everything! It seems that while the information
is learned, it never gets to the point of being a habit and thus produce
the desired result.
You will find this blog is very different. You will discover the truth
about building and rejuvinating credit. The article evaluations will help
you take practical steps in the right direction—to good credit habits
and becoming a credit millionaire. Even when you reach your goal of
becoming a credit millionaire, you’ll continue to apply the strategies
you learn in this blog to maintain your credit millionaire status.
The Journey
The journey from credit repair to credit millioniare can be stated in a
simple four-step process.
1. thoroughly explore what credit is from the eyes of a lender
2. learn sound financial principles
3. correct errors on your credit report, restoring your perfect credit
4. using your good credit to build wealth
Sounds simple, doesn’t it? It really is that easy. But knowing what t
steps are is like knowing the title to a book—you have no idea what
nuances the story unfolds. Like a good novel, this blog takes you
on the journey to millionaire credit. Together we’ll walk through each
of those four steps—legs on your journey—learning the shortcuts and
pitfalls along the path. You’ll learn the resources you need to pack fo
the trip. Whenever you find it necessary to stray from the path to
explore an interesting cove or tree of life, I’ll be right here, waiting to
guide you further along your journey.
That journey starts with a deep understanding of the credit system.
The common credit advice focuses on improving your credit score.
While this is a fine approach if you are looking for good credit to buy
your home or automobile, it’s shortsighted when looking for millionair
credit. On some next articles of this blog explodes this consumer credit myth and
explores what lenders really look at when issuing credit.
You’ll discover the five factors in every lending decision, and how to
present those factors to a lender. I call this the All-Star Credit plan.
My business used these very five factors as the framework for our
business plan presentation to the bank that ultimately gave us a $5-
million asset-based credit line. Once we knew how to tell bankers wh
they wanted to know, the doors to the vault were opened for us. On
this journey, you too will learn how to crack the code to bank vaults.
Once you’ve trained for the trip by learning what credit really is and
how to appropriately demonstrate it, you are ready to work on your
credit heath.
Complete credit rejuvination and building efforts require a two-pronged
approach. First, you need to fix the behavior or circumstance that
resulted in bad or no credit, then you need to remove, soften or respond
to the evidence on your credit report. Each prong works hand-in-hand
to bring your credit to life and ensure that the credit damage doesn’t
recur.
Next time i'll discuss the second step of your good credit journey.
Good Debt And Bad Debt-2
What’s worse than the mounting consumer debt is the loss of
opportunity when bad debt prohibits us from acquiring credit for
investments—good debt.
Good debt is debt that produces a financial benefit—it’s an investment.
It’s debt that is used to purchase assets, specifically those assets that
put money into your pocket every month. Debt used to acquire a rental
property, piece of equipment or a business is good debt especially when
the income from that asset covers the expenses of the debt every month.
With good debt, the investment pays for itself over time.
A catchy phrase I’ve heard a number of times to describe the difference
between good debt and bad debt is:
Good debt feeds you while bad debt bleeds you.
Leverage is when you use some of the equity in your assets, or the
assets of other people, to buy more assets. The power of leverage is the
greatest tool of wealth building. And without good credit, leverage is
unobtainable.
For investors and business owners, leverage is the tool that expands
your purchasing power and accelerates your success. Credit, leverage,
other people’s money (OPM)—call it what you will, but if you have a
history of misused credit, or have never established any credit, then
this important tool is not available for your use.
Let’s go back even further to discover the meaning of credit. The word
"creditor" is derived from the Latin word "credere," which means to put
faith or trust in.
Historically, the credit decision by a lender was based entirely on trust.
Banking was done on a handshake by a local lender based upon the
borrower’s reputation in the community. A lender trusted that a borrower will honor the debt, and pay it back in accordance with their
prior agreement. In essence, a creditor was someone who was willing to
place his/her faith in you. It is the trust in your ablity to borrow
money and pay it back over time, with interest.
With our economy becoming more global every day, someone’s personal
relationships and reputation in the community now plays a minor role
in the typical credit decision. An agreement between two individuals,
concluded by the traditional shaking of hands, is a rare relic. Although
credit in today's world is still based on trust, now the trust factor is
determined far less by relationships and far more by a system of scores
and formulas.
When you apply for credit, you usually grant permission for the
prospective lender to review your personal credit history as compiled
from a credit bureau. For most borrowers, credit decisions are largely
based on this impersonalized score and a sterile set of financials.
Not so for the wealthy. The wealthy in society are still able to borrow
money far in excess of what they own and earn. Unlike the majority of
borrowers, the wealthy still bank on relationships and a handshake,
allowing them the opportunity to create more and more wealth.
The lenders to the wealthy know credit is much more than a score and
a balance sheet. They view credit in a way that is far different from the
typical social folklore on what makes good credit. Some of the credit
myths that the wealthy and their lenders know are false:
in the articles that follow, and teach you to
think of credit in the same way that the
wealthiest people do.
By reading this blog, you have made a
commitment to improving your credit. The good news is, you are 24 hours away from better credit, 90 days away from
more credit, and as little as two years away from the kind of credit
profile that can make you a credit millionaire.
Yes, you can be a millionaire by focusing on your credit. This blog will
tell you the secrets the wealthy use to become wealthier, and provide
you with proven strategies for repairing, increasing and polishing your
overall credit profile.
Keep in mind that your credit can be improved—whether it’s new, poor
or excellent.
If you have bad credit, your credit problems are surmountable—no
matter how bad your past indiscretions or misfortunes. The only way
to repair damaged credit is to continue moving in this positive
direction. Take baby steps.
If you have no credit, we will walk together through the process to build
it. It may take some time to build really great credit, but in as little as
90 days you can have a positive credit profile. If you already have good
credit, it can get better! Presentation is often the primary reason that a loan gets accepted or approved. In this blog you’ll learn how to present
your credit profile in a way that lenders can’t resist.
The only way to get millionaire credit is through the proper application
of credit building strategies over time. And the only way to be a credit
millionaire is to use good credit to purchase assets.
Next time i'll discuss starting your journey to a good credit.
opportunity when bad debt prohibits us from acquiring credit for
investments—good debt.
Good debt is debt that produces a financial benefit—it’s an investment.
It’s debt that is used to purchase assets, specifically those assets that
put money into your pocket every month. Debt used to acquire a rental
property, piece of equipment or a business is good debt especially when
the income from that asset covers the expenses of the debt every month.
With good debt, the investment pays for itself over time.
A catchy phrase I’ve heard a number of times to describe the difference
between good debt and bad debt is:
Good debt feeds you while bad debt bleeds you.
Leverage is when you use some of the equity in your assets, or the
assets of other people, to buy more assets. The power of leverage is the
greatest tool of wealth building. And without good credit, leverage is
unobtainable.
For investors and business owners, leverage is the tool that expands
your purchasing power and accelerates your success. Credit, leverage,
other people’s money (OPM)—call it what you will, but if you have a
history of misused credit, or have never established any credit, then
this important tool is not available for your use.
Let’s go back even further to discover the meaning of credit. The word
"creditor" is derived from the Latin word "credere," which means to put
faith or trust in.
Historically, the credit decision by a lender was based entirely on trust.
Banking was done on a handshake by a local lender based upon the
borrower’s reputation in the community. A lender trusted that a borrower will honor the debt, and pay it back in accordance with their
prior agreement. In essence, a creditor was someone who was willing to
place his/her faith in you. It is the trust in your ablity to borrow
money and pay it back over time, with interest.
With our economy becoming more global every day, someone’s personal
relationships and reputation in the community now plays a minor role
in the typical credit decision. An agreement between two individuals,
concluded by the traditional shaking of hands, is a rare relic. Although
credit in today's world is still based on trust, now the trust factor is
determined far less by relationships and far more by a system of scores
and formulas.
When you apply for credit, you usually grant permission for the
prospective lender to review your personal credit history as compiled
from a credit bureau. For most borrowers, credit decisions are largely
based on this impersonalized score and a sterile set of financials.
Not so for the wealthy. The wealthy in society are still able to borrow
money far in excess of what they own and earn. Unlike the majority of
borrowers, the wealthy still bank on relationships and a handshake,
allowing them the opportunity to create more and more wealth.
The lenders to the wealthy know credit is much more than a score and
a balance sheet. They view credit in a way that is far different from the
typical social folklore on what makes good credit. Some of the credit
myths that the wealthy and their lenders know are false:
- Credit is bad.
- If something is done to my credit fraudulently, it’s easy to repair.
- If I get a raise, I’ll have a better credit score.
- This loan will go through no problem because of the value of the collateral.
- Getting out of debt is the best way to financial freedom.
- A good credit score means I have good credit.
- Closing accounts will increase my credit score.
- Paying my credit cards in full every month is the best way to improve my credit.
- I have all the credit I need.
- Getting a copy of my credit report will hurt my score.
- Shopping for a large ticket item will hurt my credit score when multiple vendors pull my credit.
- Declaring bankruptcy will damage my credit forever.
- I should have no problem getting credit for my rental property, even though I’m a renter myself.
in the articles that follow, and teach you to
think of credit in the same way that the
wealthiest people do.
By reading this blog, you have made a
commitment to improving your credit. The good news is, you are 24 hours away from better credit, 90 days away from
more credit, and as little as two years away from the kind of credit
profile that can make you a credit millionaire.
Yes, you can be a millionaire by focusing on your credit. This blog will
tell you the secrets the wealthy use to become wealthier, and provide
you with proven strategies for repairing, increasing and polishing your
overall credit profile.
Keep in mind that your credit can be improved—whether it’s new, poor
or excellent.
If you have bad credit, your credit problems are surmountable—no
matter how bad your past indiscretions or misfortunes. The only way
to repair damaged credit is to continue moving in this positive
direction. Take baby steps.
If you have no credit, we will walk together through the process to build
it. It may take some time to build really great credit, but in as little as
90 days you can have a positive credit profile. If you already have good
credit, it can get better! Presentation is often the primary reason that a loan gets accepted or approved. In this blog you’ll learn how to present
your credit profile in a way that lenders can’t resist.
The only way to get millionaire credit is through the proper application
of credit building strategies over time. And the only way to be a credit
millionaire is to use good credit to purchase assets.
Next time i'll discuss starting your journey to a good credit.
Crdit Repair To Credit Millionaire-1
I am going to start a series of articles which will give you a kickstart to repair your bad credit and become a credit millionaire who never denied by anyone for credit.
Simply defined, credit is financial responsibility. Credit is also any way
of paying for goods and services that doesn’t require you to pay in full
when you receive them.
In today's world it is difficult to get by without good credit. The use of
credit can buy a person time and give them access to opportunities
that would otherwise elude them. For example, how many people could
afford to purchase a new home or automobile with cash, or be willing
or able to wait the time to save enough? Many have trouble saving the
down payment for those items, let alone the entire purchase price.
Furthermore, just try to rent an automobile or make an airline or hotel
reservation without a credit card.
Credit is the bridge between you and the things you want to buy.
Over the last decade, credit cards have changed the face of the global
economy. Their wide acceptance, portability and fast transaction time
have made them the preferred currency. Increasingly, companies are
allowing us to purchase almost anything with the swipe of a card and
the scrawl of a pen—sometimes with just the electronic equivalents. As
a result, credit has assumed a greatly expanded role in the lives of
individuals.
Credit—once reserved for major purchases like homes, cars and
furniture—is now used to purchase groceries, gasoline, and even the
morning coffee. From pay-at-the-pump gas stations to online shopping
and even self-checkout grocery stores; it’s becoming easier and easier
to buy using a credit card.
What started as a convenient alternative to carrying cash has
plummeted the world into a quagmire of consumer debt.
Unfortunately, it’s easy to spend next month's
earnings before you earn them. It’s now typical for
tax refund checks expected in May to be spent to
pay the debts of the previous year’s expenses.
There is an estimated
$3 trillion in total
If you don’t think that the use of credit cards
personal debt
results in more spending, consider this: in 2001,
in the US
two professors at the Massachusetts Institute of
Technology in Cambridge conducted an
experiment. The two held an auction for tickets to
a Boston Celtics basketball game. Half of the
bidders were told that the winner would have to pay for the tickets in
cash after grace time to come up with the money. The other half were
told they could use a credit card. The bids of the credit card people
were twice as high as those of the cash people.
(My Generation, Sept-Oct 2001)
It is estimated that one in every six Americans has problem credit.
Statistics show the average person carries $8,562 in credit card debt as
of 2001, up from $3,000 in 1990. There are 185 million credit card
holders carrying 1.3 billion credit cards in use in the US, if you count
store and gas cards. These users charged $1.4 trillion to their cards in
2002. There is an estimated $3 trillion in total personal debt in the US,
not to mention business debts. The largest company in the nation, the
federal government, carries a national debt of $7.2 trillion at the time of
this writing, and it is growing over $1.7 billion a day.*
Given the present debt loads, why read a book advocating becoming
ndebted $10-million or more?
Debt, inherently, is not bad, financially irresponsible, or evil. Most
millionaires wouldn’t have their wealth without incurring debt.
Debt is “good” or “bad” relative to what the debt is used to purchase.
Debt becomes bad debt when people use it to purchase consumable
goods and even necessities. Don’t use debt to live beyond your means
and buy things you really can’t afford. Examples of bad debt are
http://www.brillig.com/debt_clock/
Next time we'll discuss about good credit and bad credit.
Simply defined, credit is financial responsibility. Credit is also any way
of paying for goods and services that doesn’t require you to pay in full
when you receive them.
In today's world it is difficult to get by without good credit. The use of
credit can buy a person time and give them access to opportunities
that would otherwise elude them. For example, how many people could
afford to purchase a new home or automobile with cash, or be willing
or able to wait the time to save enough? Many have trouble saving the
down payment for those items, let alone the entire purchase price.
Furthermore, just try to rent an automobile or make an airline or hotel
reservation without a credit card.
Credit is the bridge between you and the things you want to buy.
Over the last decade, credit cards have changed the face of the global
economy. Their wide acceptance, portability and fast transaction time
have made them the preferred currency. Increasingly, companies are
allowing us to purchase almost anything with the swipe of a card and
the scrawl of a pen—sometimes with just the electronic equivalents. As
a result, credit has assumed a greatly expanded role in the lives of
individuals.
Credit—once reserved for major purchases like homes, cars and
furniture—is now used to purchase groceries, gasoline, and even the
morning coffee. From pay-at-the-pump gas stations to online shopping
and even self-checkout grocery stores; it’s becoming easier and easier
to buy using a credit card.
What started as a convenient alternative to carrying cash has
plummeted the world into a quagmire of consumer debt.
Unfortunately, it’s easy to spend next month's
earnings before you earn them. It’s now typical for
tax refund checks expected in May to be spent to
pay the debts of the previous year’s expenses.
There is an estimated
$3 trillion in total
If you don’t think that the use of credit cards
personal debt
results in more spending, consider this: in 2001,
in the US
two professors at the Massachusetts Institute of
Technology in Cambridge conducted an
experiment. The two held an auction for tickets to
a Boston Celtics basketball game. Half of the
bidders were told that the winner would have to pay for the tickets in
cash after grace time to come up with the money. The other half were
told they could use a credit card. The bids of the credit card people
were twice as high as those of the cash people.
(My Generation, Sept-Oct 2001)
It is estimated that one in every six Americans has problem credit.
Statistics show the average person carries $8,562 in credit card debt as
of 2001, up from $3,000 in 1990. There are 185 million credit card
holders carrying 1.3 billion credit cards in use in the US, if you count
store and gas cards. These users charged $1.4 trillion to their cards in
2002. There is an estimated $3 trillion in total personal debt in the US,
not to mention business debts. The largest company in the nation, the
federal government, carries a national debt of $7.2 trillion at the time of
this writing, and it is growing over $1.7 billion a day.*
Given the present debt loads, why read a book advocating becoming
ndebted $10-million or more?
Debt, inherently, is not bad, financially irresponsible, or evil. Most
millionaires wouldn’t have their wealth without incurring debt.
Debt is “good” or “bad” relative to what the debt is used to purchase.
Debt becomes bad debt when people use it to purchase consumable
goods and even necessities. Don’t use debt to live beyond your means
and buy things you really can’t afford. Examples of bad debt are
http://www.brillig.com/debt_clock/
Next time we'll discuss about good credit and bad credit.
Wednesday, September 06, 2006
The importance of credit score and adverse affect of bankruptcy on credit score.
While filing for bankruptcy is becoming a common practice worldwide and millions are swimming in debt ; avoiding bankruptcy and increasing the credit score is the most important step to get rid off this destructive situation . An expert can guide anyone in this situation fairly and if his advices come free then it is better.
Avoiding bankruptcy is the key of any good credit score sheet.
Bankruptcy is the single worst thing that will destroy ones credit score. Bankruptcy will lower the persons credit score by 200 points or more and is very difficult to come back from.
Once a persons credit score falls below 620, any loan he/she get will be far more expensive. A bankruptcy on a credit record is reported for up to 10 years.
And the importance of credit score to get credit and credit card anywhere in the world is unavoidable.
The FICO or credit score ranges are broken down as follows:
720-850 - This represent the best score range
700-719 – Able to obtain favorable financing terms
675-699- This is still a decent score range
620-674 – May have trouble obtaining favorable credit terms
560-619 – May have trouble obtaining credit
500-559 – Time to improve your score
Ones credit score is broken down into 5 distinct categories each with their own importance based on a percentile. The 5 categories and the percentage they represent I relation to his/her credit score are as follows:
Payment History – 35%
Amounts Owed – 30%
Length of Credit History – 15%
New Credit – 10%
Types of Credit Used – 10%
Ones payment history contains information on credit cards, retail accounts, installment loans, finance company accounts and any mortgages he/she may have had. It also details any past due accounts and the amount owed on him. He will also find bankruptcy information as well as other adverse information in regards to his credit history. This is why it warrants a 35% piece of the pie.
So , it is important to increase credit score even if one have good credit and must if one have bad credit and one should avoid bankruptcy as far as possible with help of a credit consultant .
My next topic will be about how to avoid bankruptcy and wahat are the alternatives of bankruptcy.
Avoiding bankruptcy is the key of any good credit score sheet.
Bankruptcy is the single worst thing that will destroy ones credit score. Bankruptcy will lower the persons credit score by 200 points or more and is very difficult to come back from.
Once a persons credit score falls below 620, any loan he/she get will be far more expensive. A bankruptcy on a credit record is reported for up to 10 years.
And the importance of credit score to get credit and credit card anywhere in the world is unavoidable.
The FICO or credit score ranges are broken down as follows:
720-850 - This represent the best score range
700-719 – Able to obtain favorable financing terms
675-699- This is still a decent score range
620-674 – May have trouble obtaining favorable credit terms
560-619 – May have trouble obtaining credit
500-559 – Time to improve your score
Ones credit score is broken down into 5 distinct categories each with their own importance based on a percentile. The 5 categories and the percentage they represent I relation to his/her credit score are as follows:
Payment History – 35%
Amounts Owed – 30%
Length of Credit History – 15%
New Credit – 10%
Types of Credit Used – 10%
Ones payment history contains information on credit cards, retail accounts, installment loans, finance company accounts and any mortgages he/she may have had. It also details any past due accounts and the amount owed on him. He will also find bankruptcy information as well as other adverse information in regards to his credit history. This is why it warrants a 35% piece of the pie.
So , it is important to increase credit score even if one have good credit and must if one have bad credit and one should avoid bankruptcy as far as possible with help of a credit consultant .
My next topic will be about how to avoid bankruptcy and wahat are the alternatives of bankruptcy.
Saturday, September 02, 2006
Bad credit credit cards
I've discussed many times how and where you can get the best credit card after bankruptcy or bad credit. Today i'll discuss how to increase your credit score using a bad credit credit cards.
These steps will help you to increase your credit score with a bad credit credit cards.
When you are building your credit score, you want to start small. Open one account and use it at least once a month to make a purchase. This can be a regular purchase that you have cash to pay for. The point is to use your credit and then repay it. Every time you make a payment, it will show up on your credit report.
Lenders will also look at how often you make payments. So using your card once a year and paying off the entire balance that month won’t do you much good. Your credit report covers three years’ worth of payment history, and lenders want to see your payment pattern.
Don’t max out your card either. Only use a small portion of your credit to show lenders that you don’t get yourself into financial binds.
Credit card companies offer several different types of credit cards for consumers. You can find student programs that require no co-signer or income. This is a great offer for your first card, but these cards also have higher rates.
You can also find cards with cash back rewards or other incentives. The trade-off are higher rates though. However, you can find no frill cards with low interest rates if you plan to carry a balance. Whichever credit card program you choose, make sure it fits with your financial goals.
Regular payments are only one part of your credit score. You also want to keep your credit in good order. If you have dozens of accounts open, close the ones you don’t use. The less open credit you have, the more you will be eligible for, a bonus when buying a home or car.
Also be sure to take advantage of your annual free credit report. Look over it to make sure that your credit history is correct. If you find any discrepancies, resolve them with your lender.These steps will help you to increase your credit score with a bad credit credit cards.
Thursday, August 24, 2006
Exceptional Ways To Improve Your Credit Score
Credit score! That's the thing perhaps most Americans care about these days.It is easy to ruin your credit score -but-building or increasing credit score is not so easy. Here some tips to increase your credit score easy to follow but exceptional.
First tip:
Dont spend hundreds of dollars on credit repair services that
don’t work.
Write letters to the collection agencies requesting
proof that the bad credit accounts were your. 89% of the time they have
no proof that the bad accounts belonged to you. So you'll be able
to get them deleted from your credit file.
Second tip: Get a copy of your credit report
Obtaining a copy of your credit report is a good idea because if there is something on your report that is incorrect, you will raise credit score once it is removed. Make sure you contact the bureau immediately to remove any incorrect information.
Your credit report should come from the three major bureaus: Experian, Trans Union and Equifax. It's important to know that each service will give you a different credit score.
Third tip:
Open new accounts with high credit limits and keep the
balances low.
If you keep your available credit limits high and
only use 10% to 30% of the credit you have available, your
credit score will improve dramatically.
Fourth tip: Pay Your Bills On Time
Your payment history makes up 35% of your total credit score. Your recent payment history will carry much more weight than what happened five years ago.
Missing just one months payment on anything can knock 50 to 100 points off of your credit score.
Paying your bills on time is a single best way to start rebuilding your credit rating and raise credit score for you.
Fifth tip: Pay Down Your Debt
Your credit card issuer reports your outstanding balance once a month to the credit bureaus. It doesn't matter whether you pay off that balance a few days later or whether you carry it from month to month.
Most people don’t realize that credit bureaus don’t distinguish between those who carry a balance on their cards and those who don’t. So by charging less you can raise credit score even if you pay off your credit cards every month.
Lenders also like to see a lot of of room between the amount of debt on your credit cards and your total credit limits. So the more debt you pay off, the wider that gap and the better your credit score.
Tip no 6: Next, add accounts with years of perfect payment history to
your credit file. This step will take your credit score from 647 to 762.
While you can certainly add seasoned accounts to your credit
file for free, there are companies that claim they can do it for
a fee.
The problem is, they charge between $2,000 and $2,500 per
account. If you want a 700+ credit score you’ll need 3 to 4 of
these accounts. That equates to a cost of $6,000 to $10,000.
Tip no 7: Don’t Close Old Accounts
In the past people were told to close old accounts they weren’t using. But with today's current scoring methods that could actually hurt your credit score.
Closing old or paid off credit accounts lowers the total credit available to you and makes any balances you have appear larger in credit score calculations. Closing your oldest accounts can actually shorten the length of your credit history and to a lender it makes you less credit worthy.
If you are trying to minimize identity theft and it's worth the peace of mind for you to close your old or paid off accounts, the good news is it will only lower you score a minimal amount. But just by keeping those old accounts open you can raise credit score for you.
Tip no 8: Stay Out Of Bankruptcy
Bankruptcy is the single worst thing that will destroy your credit score. Bankruptcy will lower your credit score by 200 points or more and is very difficult to come back from.
Once your credit score falls below 620, any loan you get will be far more expensive. A bankruptcy on your credit record is reported for up to 10 years.
Your credit score will go up if you follow these steps.
First tip:
Dont spend hundreds of dollars on credit repair services that
don’t work.
Write letters to the collection agencies requesting
proof that the bad credit accounts were your. 89% of the time they have
no proof that the bad accounts belonged to you. So you'll be able
to get them deleted from your credit file.
Second tip: Get a copy of your credit report
Obtaining a copy of your credit report is a good idea because if there is something on your report that is incorrect, you will raise credit score once it is removed. Make sure you contact the bureau immediately to remove any incorrect information.
Your credit report should come from the three major bureaus: Experian, Trans Union and Equifax. It's important to know that each service will give you a different credit score.
Third tip:
Open new accounts with high credit limits and keep the
balances low.
If you keep your available credit limits high and
only use 10% to 30% of the credit you have available, your
credit score will improve dramatically.
Fourth tip: Pay Your Bills On Time
Your payment history makes up 35% of your total credit score. Your recent payment history will carry much more weight than what happened five years ago.
Missing just one months payment on anything can knock 50 to 100 points off of your credit score.
Paying your bills on time is a single best way to start rebuilding your credit rating and raise credit score for you.
Fifth tip: Pay Down Your Debt
Your credit card issuer reports your outstanding balance once a month to the credit bureaus. It doesn't matter whether you pay off that balance a few days later or whether you carry it from month to month.
Most people don’t realize that credit bureaus don’t distinguish between those who carry a balance on their cards and those who don’t. So by charging less you can raise credit score even if you pay off your credit cards every month.
Lenders also like to see a lot of of room between the amount of debt on your credit cards and your total credit limits. So the more debt you pay off, the wider that gap and the better your credit score.
Tip no 6: Next, add accounts with years of perfect payment history to
your credit file. This step will take your credit score from 647 to 762.
While you can certainly add seasoned accounts to your credit
file for free, there are companies that claim they can do it for
a fee.
The problem is, they charge between $2,000 and $2,500 per
account. If you want a 700+ credit score you’ll need 3 to 4 of
these accounts. That equates to a cost of $6,000 to $10,000.
Tip no 7: Don’t Close Old Accounts
In the past people were told to close old accounts they weren’t using. But with today's current scoring methods that could actually hurt your credit score.
Closing old or paid off credit accounts lowers the total credit available to you and makes any balances you have appear larger in credit score calculations. Closing your oldest accounts can actually shorten the length of your credit history and to a lender it makes you less credit worthy.
If you are trying to minimize identity theft and it's worth the peace of mind for you to close your old or paid off accounts, the good news is it will only lower you score a minimal amount. But just by keeping those old accounts open you can raise credit score for you.
Tip no 8: Stay Out Of Bankruptcy
Bankruptcy is the single worst thing that will destroy your credit score. Bankruptcy will lower your credit score by 200 points or more and is very difficult to come back from.
Once your credit score falls below 620, any loan you get will be far more expensive. A bankruptcy on your credit record is reported for up to 10 years.
Your credit score will go up if you follow these steps.
Wednesday, August 16, 2006
Credit Reporting Agency (CRAs)
The CRAs (Credit Reporting Agency) are required by law to protect your rights while you are in the process of clearing credit.This process is tedious and frustrating . They must remove undocumented information on your report.
A negative credit report hinders your quest for financing a house. You will have to do a lot of tedious work to clear up any mistakes in your credit report.
Once you receive your reports, you will be given a phone number to discuss your report with a real person. Your gentle manners and pleasant conversations with the credit bureau employees will motivate them to help you more than angry words. Remember, these people are just doing their job and they get yelled at day after day by frustrated consumers.
Complete the dispute form provided with your credit report if something wrong in your credit report and write a letter for all discrepancies to both the creditor and the credit bureaus listing the item. Identify each credit report error by their corresponding account number and state why it's wrong. Include a photocopy of your credit report with the errors circled with your dispute form and letters. Send copies of your supporting documents.
Keep a copy of these documents with you for future reference.
This is important because in extreme cases they are required when some disputes are setteled with the help of Attorney.
What the Credit reporting agency do with your information.They sell it to data marketing companies.It is usually done when you apply for a mortgage loan .
A negative credit report hinders your quest for financing a house. You will have to do a lot of tedious work to clear up any mistakes in your credit report.
Once you receive your reports, you will be given a phone number to discuss your report with a real person. Your gentle manners and pleasant conversations with the credit bureau employees will motivate them to help you more than angry words. Remember, these people are just doing their job and they get yelled at day after day by frustrated consumers.
Complete the dispute form provided with your credit report if something wrong in your credit report and write a letter for all discrepancies to both the creditor and the credit bureaus listing the item. Identify each credit report error by their corresponding account number and state why it's wrong. Include a photocopy of your credit report with the errors circled with your dispute form and letters. Send copies of your supporting documents.
Keep a copy of these documents with you for future reference.
This is important because in extreme cases they are required when some disputes are setteled with the help of Attorney.
Credit bureaus must investigate disputes within 30 days of receiving your complaints. Any item that is not verified as accurate by a creditor is supposed to be removed. However, the supposed creditors do not have to provide any supporting documentation. All they have to do is state that the account is reported accurately.
For this reason, after receiving your updated credit reports, check to see what actions were taken.What the Credit reporting agency do with your information.They sell it to data marketing companies.It is usually done when you apply for a mortgage loan .
These data marketing companies then resell the information to lenders who are interested in trying to entice you to use their lending services. The information the data marketing companies provide is valuable, because it tells lenders everything about your creditworthiness before lenders pitch you their offers.
Just what other sort of information is being sold?
Mortgage Inquiry Data also sells:
credit scores
open mortgage balances
monthly payments
loan-to-value rations
revolving credit card balances
personal credit information besides just marketing application information.
then you can personally express your disapproval by contacting the Federal Trade Commission.
Wednesday, August 09, 2006
Chapter 11 bankruptcy
Chapter 11 bankruptcy can be called reorganisation bankruptcy because in this case a person may be allowed to propose a plan of reorganization or repayment so that they can continue with his business while paying for his debt.
It is less severe than chapter 7 bankruptcy or chapter 13 bankruptcy because --
--It has not any debt limitation like chapter 13 bankruptcy.
--A repayment schedule is negotiated with creditors as an alternative to asset liquidation.
--Signing in for a bankruptcy , one should get ready for deliberate explanation to a judge or trustee how he get himself into such a situation.The person in one way or another might lose any credit card he has unless he has already paid for it. After declaring economic failure, one can have a hard time re-applying for mortgages, loans, credit cards, life insurance and even some job, so one should get ready to rebuild his credit.
Chapter 11 bankruptcy, a type of bankruptcy, which is less severe and allows the person in debt to remain in possession of his assets.The creditor company can cancel all the debts made by the person in order for them to make a new start.
This is neither harsh compared to other forms nor methods which will require the debtor to sell all his properties and to repay the credit at any stake. In this process, the debtor is permitted to postpone all payments so that he or she can put himself back to rearrange his or her finances, hoping that the person can recover and build up his business once again.
Chapter 11 bankruptcy is almost certainly the most flexible of all the chapters, and the same time the hardest to generalize. Its flexibility makes it generally more expensive to the debtor.
It is less severe than chapter 7 bankruptcy or chapter 13 bankruptcy because --
--It has not any debt limitation like chapter 13 bankruptcy.
--A repayment schedule is negotiated with creditors as an alternative to asset liquidation.
--Signing in for a bankruptcy , one should get ready for deliberate explanation to a judge or trustee how he get himself into such a situation.The person in one way or another might lose any credit card he has unless he has already paid for it. After declaring economic failure, one can have a hard time re-applying for mortgages, loans, credit cards, life insurance and even some job, so one should get ready to rebuild his credit.
Chapter 11 bankruptcy, a type of bankruptcy, which is less severe and allows the person in debt to remain in possession of his assets.The creditor company can cancel all the debts made by the person in order for them to make a new start.
This is neither harsh compared to other forms nor methods which will require the debtor to sell all his properties and to repay the credit at any stake. In this process, the debtor is permitted to postpone all payments so that he or she can put himself back to rearrange his or her finances, hoping that the person can recover and build up his business once again.
As soon as the company enters to the conditions of Chapter 11, they can still operate on a day-to-day basis.
Companies affected with this type of condition can still trade stocks.However, it will be unnecessary to still buy the stocks of these companies because more often than not the company will only end up in financial loss.Chapter 11 bankruptcy is almost certainly the most flexible of all the chapters, and the same time the hardest to generalize. Its flexibility makes it generally more expensive to the debtor.
Thursday, August 03, 2006
Best Credit Card After Bankruptcy
Best credit card after bankruptcy.
It is easy to find out.I am not affiliate to any card issuer.So i wont distinguish any card as the best.But i can point out some criterias to find out the best credit card after bankruptcy.
First thing is low application fee and zero or low processing fee.
I found some secured credit cards that have no application fees and one that had a-- are you ready for this?.....90$- $120 application fee! Sadly, many people have paid it!
I alaways advice to go for a secured credit card for the people with bankruptcy.
The second thing is low interest rate.
If you are in bankruptcy then you are a high risk customer.Some banks or lending companies will give you credit or credit card but at an increased rate.
I ran across one with an interest rate of 23.99% and another with an interest rate of only 9.25%.
So find out one with the lowest rate.
By satyajit das--Blogger of this blog--B.Tech in computer Sc. and MBA (Finance).I am a freelauncher credit consultant dealing with some credit lending companies.
I think now you can find out the best credit card after bankruptcy yourself.
It is easy to find out.I am not affiliate to any card issuer.So i wont distinguish any card as the best.But i can point out some criterias to find out the best credit card after bankruptcy.
First thing is low application fee and zero or low processing fee.
I found some secured credit cards that have no application fees and one that had a-- are you ready for this?.....90$- $120 application fee! Sadly, many people have paid it!
I alaways advice to go for a secured credit card for the people with bankruptcy.
The second thing is low interest rate.
If you are in bankruptcy then you are a high risk customer.Some banks or lending companies will give you credit or credit card but at an increased rate.
I ran across one with an interest rate of 23.99% and another with an interest rate of only 9.25%.
So find out one with the lowest rate.
By satyajit das--Blogger of this blog--B.Tech in computer Sc. and MBA (Finance).I am a freelauncher credit consultant dealing with some credit lending companies.
I think now you can find out the best credit card after bankruptcy yourself.
Thursday, July 27, 2006
Rebuilding Credit After Bankruptcy
Rebuilding Credit After Bankruptcy--
when you can rebuild credit after bankruptcy? After you erase all your bad credits , right?
So,when you are rebuilding credit after bankruptcy consider some factors --while you take loan (with mortgage or without mortgage) and when you take new credit card after bankruptcy and when you buy new or old car or house with the aid of other financial institutions.
I alaways advice to take a pre-approved or secured credit card but -- a low interest rate is important. While researching some secured credit cards I ran across one with an interest rate of 23.99% and another with an interest rate of only 9.25%.
Next thing you should consider is a lower application fee. Again, I found some secured credit cards that have no application fees and one that had a-- are you ready for this?.....90$- $120 application fee!I advice you to search extensivly through internet a after bankruptcy credit card with very less or without application fee.
The second thing to consider while rebuilding credit after bankruptcy is low interest and long repay period car loan or any such type of loan from reputable lender online to make sure your personal information is secure.
Dont go for buy-here-pay-here car lot offers.
The third thing to consider while rebuilding credit after bankruptcy is rebuilding your credit history to increase your credit score. Be careful in this case. It can take one or two year for you. Rebuilding your credit history can increase your credit score. This in turn can mean the difference between qualifying or being declined for a loan.
when you can rebuild credit after bankruptcy? After you erase all your bad credits , right?
So,when you are rebuilding credit after bankruptcy consider some factors --while you take loan (with mortgage or without mortgage) and when you take new credit card after bankruptcy and when you buy new or old car or house with the aid of other financial institutions.
I alaways advice to take a pre-approved or secured credit card but -- a low interest rate is important. While researching some secured credit cards I ran across one with an interest rate of 23.99% and another with an interest rate of only 9.25%.
Next thing you should consider is a lower application fee. Again, I found some secured credit cards that have no application fees and one that had a-- are you ready for this?.....90$- $120 application fee!I advice you to search extensivly through internet a after bankruptcy credit card with very less or without application fee.
The second thing to consider while rebuilding credit after bankruptcy is low interest and long repay period car loan or any such type of loan from reputable lender online to make sure your personal information is secure.
Dont go for buy-here-pay-here car lot offers.
The third thing to consider while rebuilding credit after bankruptcy is rebuilding your credit history to increase your credit score. Be careful in this case. It can take one or two year for you. Rebuilding your credit history can increase your credit score. This in turn can mean the difference between qualifying or being declined for a loan.