Someone from Chase Bank called! She told me that I was approved for exactly what I had applied for - 60k - and she promised that I would soon receive a call from a representative to set up an appointment to sign the loan documents. Sure enough, a week later, early January 2008, I got the promised call and subsequently signed the documents and opened a business checking account with a $100 deposit.
One cold day in February 2008, I decided to apply for a 40k loan with Sovereign Bank. This is one of two banks I had actually personally gone to. I called first and spoke with a representative and made an appointment to see her. Old school, right?
I arrived for my appointment exactly on time. As I sat down, the representative immediately gave me a form to sign: a 4506-T. I really did not know what I was signing. Nobody else had ever given me this particular form. I checked my personal credit reports before applying, they were in awesome shape: TransUnion and Equifax, both showed credit scores well over 760 and showed only one recent inquiry on each.
And I also made sure that I paid my credit cards debt down before applying.My business credit reports were outstanding, showing positive payment histories with 10 accounts.
I signed the 4506-T document, and left the bank. When I arrived home, the very same day, the representative called me in a very excited manner, and said that I was pre-approved for 40k.
Oh yeah! I thought, very good.Then the next day she called me back apologizing, saying something about my prior tax returns, and that I was actually declined because of it.
Oh brother! I felt like I was on an emotional roller coaster. That was a real “gotcha” moment for me. The bank rep calling you excited telling you that “you’ve been pre-approve for 40k. The exact amount I had requested. The very next day she calls back apologizing. It’s a no! no!
The 4506-T form gives lenders permission to access your past tax returns. If your business didn’t turn a significant profit for the past year or two, there is no point in signing it.
When the bank representative called me and spoke about pre-approval, I should have known to take that with a grain of salt. The key word here is “pre-approval”. How many times have you received an application in the mail stating your pre-approved for this or that credit card. You then fill it out and send it in and wait for your credit card to arrive in the mail, only to find out you were actually declined.
There are no guarantees with pre-approvals. Basically, it means that you have met their initial basic requirements and after digging deeper by pulling your personal credit report to see if you meet their specific criteria, you will receive a card in the mail, or a rejection letter is headed your way.
If you have bad credit, don’t bother.I’ve received a lot of pre-approvals for credit cards, I have never heard of pre-approvals for loans.
I decided to go ahead and apply for a business bank loan with Citibank. For the second time, I physically went to a local bank and applied in person. I opened a business checking account depositing $1,100. After several weeks had passed and I hadn’t heard anything about my loan application, I decided to go back to the office and personally inquire about my application. I was informed that I was approved for $10,000, which was a bit disappointing since I had requested $50,000.
Six months later, call again requesting another credit line increase.
Your debt to income ratio (DIR) is a measure that compares the amount of money that you earn to the amount of money that you owe to your creditors. It is more simple than it sounds, although the math can sometimes be a challenge.
For lending purposes, the debt-to-income calculation is always based on your gross income. For you accounting novices, “gross” is not creamed spinach or pureed carrots, or sautéed okras, it is your income BEFORE expenses or deductions. Net income is what is left over after deductions. Got it? Now let’s move on…
The more encompassing measure is to include the total amount of money that you spend each month servicing debt. This includes all recurring debt.What do the numbers reveal?
Your debt-to-income ratio tells you a lot about your financial health. Lower numbers equals less debt and is generally viewed positively. If you don't have a lot of debts to service, you will have more money available for spending. Conversely, a high debt to income ratio illustrates a lack of dollars at the end of the month. These numbers will affect your ability to grow your credit and your business.
What is a good debt to income ratio? Lenders generally prefer a 30% debt-to-income ratio. A debt-to-income ratio of 37- 45% is often viewed as a high limit. Not good.If your DIR is more than 50%, you definitely have too much debt. That means, you're spending at least half your monthly income on debt. Between 37% and 49% are risky numbers. Ideally, you want to have a DIR that's under 30%. Which means you have a manageable debt load and money left over after making your debt payments.
Generally, there are two ways to lower your DIR. The ratio is two-sided income and debt - so you can attack either side of the equation.
First, you can increase your income. That could mean any number of things: working some overtime, taking on part-time employment, or starting a business. The more you can increase your monthly income (without simultaneously raising your debt payments) the lower your DIR will be.
The other way to lower your ratio is to pay off your debt. Once your debts are paid off, your debt-to-income ratio will drop dramatically. If your ratio is high and you're only making minimum payments, that's a big problem.
A close cousin to Debt to Income Ratio is your Credit Utilization. If you are using 40% or more of your available credit, this is considered highly negative and maxed-out. This will lower your credit score and also make it almost impossible to obtain additional credit or credit line increases.
The Only solution to this problem is that you must pay down your debt. Even if you have five credit cards, with only one over 40% usage, this is considered max out, and your credit score will suffer accordingly.
Pay down and pay off your credit cards debt; that’s the bottom line. There’s no other way around it.Ø One of the things you can do to raise your personal credit score
Is this: You can transfer your personal credit cards debt that you have used for your business over to your business credit cards. This will automatically improve your personal credit scores by lowering your Credit Utilizations.
Many people seem to have resigned themselves to living with their flawed or outright lousy credit. Don’t do it. Bad credit is something you can do something about. It's not instantaneous; it's not even simple. But it is fixable.
If you have bad credit, what are you doing about it? You can sit back and do nothing or you can take actions to correct the situation. I just cannot understand it when people seem to be comfortable moving about with bad credit.
In six months or less a bad credit rating can be turned into a positive credit rating. Many people have done it and are doing it right now. They are inching forward toward good credit. What about you?
I was recently reading an article in the New York Times about how many people are being turned down for employment because of their bad credit. They describe a gentleman, who was interviewed and then shown his new office; he was even introduced to his co-workers. Naturally he thought he had the job. Wouldn’t you? Only to find out that later the company pulled his personal credit report, which was bad, they had rescinded the offer of employment.
Unfortunately, this is happening to countless numbers of people who are well qualified for the jobs they seek. With competition being what it is you have one job opening and hundreds show up. The terrible thing about it is that they have you come in for an interview first, if they are interested in you, then afterwards they pull your credit report. Why? Because you must give them permission to check your credit report and you do that by signing the job application form. It's in that pesky small print no one bothers to read!
It doesn’t even matter how knowledgeable you presented yourself. It doesn’t matter how sharp you looked wearing your three piece suite, or how articulate and charming you were at the interview. Or how impressive your resume was. Nor the good vibes you felt between you and the interviewer. Your credit report is the final judge and jury. Bad credit reflects badly on your character and that’s all the excuse they need not to hire you. Enough said.
Another thing that is happening: many small business owners has gone out of business and there is a steep raise in bankruptcies. Many of these former entrepreneurs will be going out looking for a J.O.B. too. And with their bad credit rating they will be hard press to find one. In many cases the only option will be to have their family or friends hire them.
The bottom line is this. Bad credit will place a limit on you. The vast majority of cash credit requires good credit. If you have collection accounts, pay up and have them delete the collections from your credit report. Make deleting the entry a condition of paying up, get it in writing, but pay up. Period.
Secured personal Loans
To get some positive trade lines reporting on your personal credit report as soon as possible, go to your bank and speak with a representative. Tell them that you are trying to build your personal credit and that you want to take out a secured loan.
Find out if they report to the three major credit bureaus. If yes, deposit $1,000 into your savings account for the secure loan. Once you're given the secured loan, deposit the money right back into your savings account. Make sure you make your monthly payments before the due date.
Secured Mastercard or Visa
If your budget allows, you can also get a personal secured Mastercard or Visa. Inquire within your bank. Verify that they do report to the three major credit agencies. Make your deposit. Make sure your monthly payment is received before the due date.
Of course, at the same time you must work on eliminating the negatives. Now that I was approved for a business loan with Citibank, I decided to try again for a business credit card. I had previously applied twice and was decline twice due to my personal Experian report. Now that my Experian is chilling out on a freeze, I was very curious as to what the outcome would be this time around. I went forward and applied again, this time I was approved for a business card, however, the limit was low compared to my other business credit cards. Only $4000.