Credit Report

By Hannah Wallace October 31, 2006

Sarasota resident Gerri Detweiler constantly warns people that "credit card companies' decisions are always so they can be profitable for their shareholders." She should know. The former executive director of the nonprofit consumer education and advocacy group, Bankcard Holders of America, and the author of the Ultimate Credit Handbook, Detweiler has been quoted in the Wall Street Journal, the Washington Post and The New York Times and interviewed on network news programs as a national expert on credit issues.

She cautions small business owners to research how they're going to fund their start-up costs. Time and again, Detweiler says, people ruin their financial lives by risking their personal wealth to raise money for their business. Here's how to avoid the pitfalls:

If you dig a hole with bad business credit practices, they can haunt you for a long time. "Business credit reporting agencies are completely separate from the personal credit agencies. There are no consumer protection laws. If you land in the high-risk category, it is much harder to get out," Detweiler says.

"You can lose valuable tax deductions, and you put your personal credit-and assets-at risk when you mix business and personal credit," Detweiler says. "Creating a separate business entity with its own credit is also just smarter business."

Credit scores affect many aspects of our daily lives, from business loans to insurance rates, and keeping them high is more important than ever. Detweiler says it's imperative to learn what can negatively affect your credit scores. "The closer you are to your credit limits, the more it affects your credit. A recent study by of more than 39,000 consumers' credit reports found that being too close to the credit limits on revolving accounts was the No. 1 reason why consumers' credit scores were not as high as they could have been."

Make sure you know the credit limits on cards you authorize employees to use. Stories abound about employees who go on shopping sprees with the boss' money, and it's not always easy to recover those dollars. "You have to be very careful that your credit limit is small and that you trust the employee you give a card to," Detweiler says.

Just because you sell your interest in a business doesn't mean you're off the hook for that business's credit. Detweiler says make sure to pay off and close out any accounts you have co-signed for as a partner. When your ex-partner eventually gets into trouble, the creditors will still be after you if you didn't close out joint accounts.

The print is fine-real fine-and almost no one reads it. But check your credit card agreements and monitor your monthly statements. Detweiler says credit card companies give themselves the right to do all sorts of things that don't benefit the borrower. "People think they use credit reports to decide whether you're safe to lend money to. Really what they use it for is to determine how much money they can make off of you. One late payment or increasing your revolving debt will give them the license to raise your interest rate. The average rate they will raise you to is 22.4 percent-and I've seen interest rates as high as 36 percent," she says.

Detweiler says 50 percent of those who ask their credit card company for a lower rate get it. And although more call centers are located overseas, she says an old trick is to call the company at night, when staffing is lighter. Because customer service reps have their calls timed, and callers' times on hold are monitored, they are more likely to give in to your demands when they are busier.

Establishing good business credit is just as important as personal credit. Detweiler says a common practice these days is for business owners to borrow the equity in their homes to start a business. But instead of buying everything you need with that money, she suggests banking it, getting business loans and leasing anything you can. That preserves cash flow and gives you reserves for emergencies, marketing and advertising. "I don't think a lot of business owners realize how easy it is to get those cards. They're going to check your personal credit to approve you. But once you've got it, it doesn't matter to your personal credit. It's not necessarily bad to borrow," Detweiler says.

Make sure you don't get behind on business or personal payments, Detweiler says. "One late payment can trigger high late fees and higher interest rates, and can even cause other lenders to raise your interest rates."

While a business credit problem won't likely show up in your personal credit score, personal issues certainly affect your ability to get business loans. "When you are busy running your business, you may find it hard to keep on top of the bills," Detweiler says. "But your personal credit often will be reviewed for business and personal loans and credit cards. A lower score means higher interest rates. I don't think most people know how much power that credit report has over their lives."

  1. Start off on the right foot.

  2. Separate business and personal credit.

  3. Keep credit card balances low in relation to the credit limits.

  4. Watch those employee credit cards.

  5. Be careful when you co-sign.

  6. Be vigilant with your statements.

  7. If you want a lower interest rate, ask for it.

  8. Don't be afraid to borrow for your start-up business.

  9. Don't allow payments to slip through the cracks.

  10. Don't let personal credit slide.

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