Business Finance Solutions

Tamara Rasheed asked:

Positive Credit References are credit accounts that you have taken care of extremely well. Their care shows that you are responsible and have integrity and credibility in your finances.

There are two factors that you should use in determining what kinds of credit debts to add to your credit:

1. How much debt do you have already?

2. How much is your household budget, or, what available funds do you have to care for this credit debt.

Your debt ratio is the current amount of credit debt that you currently owe on your credit reports. For example, if you have an auto loan for 9,000, a mortgage for $58,000 and two credit cards that total $2,500.00, then your total debt ratio is $69,500.00.

Many companies use your debt ratio to determine your approvability. Looking at your income, lines of credit and any investments and comparing it to your debt ratio, a funder, creditor or lender can determine if you have the means to pay them back. If you’ve already over-borrowed on your credit based on the amount of income you have to offset your credit debts, then funders, lenders and creditors will not finance you. If disaster strikes, business sense says that you will stop paying back your debts first.

Your household budget is important when adding positive credit references because the additional debt must be comfortably accounted for to keep the debt from becoming unmanageable. Remember, credit is supposed to be an extension of the money you have, so do not get carried away. These accounts should be added comfortably to your credit reports without causing a financial strain on you.

Look at each reference and determine which one would be comfortable to start with.

Bank Loans – There are programs available that will allow you to pay a minimal amount of money to you’re your loan started, while the bank matches or exceeds that amount. You make payments on it and these payments help to establish an installment loan history on your credit reports and offsetting your debt ratio. These loans are important because they grow to create a substantial nest egg for you and your family, as well as to assist with any projects you are trying to fund.

Auto Loans – Because of the length of time auto loans stay on your credit, up to 36 months, they give you a phenomenal payment history if you pay them early each month. In order to see a change in your credit score, you cannot pay off your auto loan early and you cannot be late on any of your payments. This makes their obligation to benefit you void. Be sure to pay your auto loan on time for the duration of the loan and you will receive the benefit of a credit score boost at the end of the loan period.

Credit Cards – Existing: If you currently have credit cards that you use, you can actually start to raise your score with them within 4 months. You need to show that you don’t need to spend all of the money on the card and that you won’t be late. You do this in the following ways:

1) If you owe any money on your credit cards, you will need to pay them back to your total line of credit for these cards to be used properly.

2) Keep your available balances at 30 – 35% of your line of credit. For example, if you have a credit limit of $300, you can spend up to $210 of what is on the card. If you do this every month, you will receive the benefit of a higher line of credit and a boost in your credit score.

3) Use your credit card only for purchases that you have the CASH ON HAND to cover – this eliminates interest and directly pays your principle, which regular monthly payments based on your minimum balance always avoid.

Credit Cards – Establishing: When establishing credit cards, there are two kinds that you can choose from – unsecured and secured.

1) The typical unsecured credit cards have a limit of $300 – $500 and they pay their own fees out of the card. This means that they may charge you an activation fee or annual fee of $150 and take it from the card when you are approved. This is good, because it doesn’t cause you to have to pay out of your pocket to get it started, however, you do have to pay the card back to the available line of credit to begin using the card. You do not want to fall below that 35% availability on your card.

2) Secured credit cards come from banks. You put $250 – $300 in an account with them, and they will create a credit line off of your money for that amount. Credit cards are an excellent way to create a payment history and boost your credit scores. Use the same techniques that are used for existing credit cards, outlined above.

Important Note: Department store credit cards are not recommended because the interest is too high and they, often times, will not negotiate the interest with you.

Merchant Accounts – Available from sources online, you make purchases from their particular catalog twice per year and the repayment of that item you purchased creates an excellent payment history that reports to all 3 credit bureaus while decreasing your debt ratio.

Financing Furniture – This, surprisingly, is an excellent way to build a credit reference as well. If you go to a furniture store and finance a small piece of furniture, you will create a record of payment that will show favorably on your credit report. Financing the furniture, and getting a department store credit card are 2 totally different things. You are not applying for credit with their store, you simply want to make payments on what you are purchasing and have it show on your credit report. Be sure to make that distinction to the sales person.

Once you’ve decided on the positive credit references that you want to add to your credit profile, you’re ready to start adopting the proper credit habits and schedules that will create excellent credit for you.
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