The fate of consumers and small business owner’s finances is wrapped in their ability to access credit and capital. This is increasingly the case, but still few borrowers are aware of exactly how their credit scores are determined. To further complicate what may already be a confusing picture for many, there is a new competitor on the market that, if it is successful in the market, will give consumers a second credit score in addition to the one they already have.

The current credit industry is something like a pyramid in its structure. At the bottom are the consumers who want to finance a car or new refrigerator. These individuals seek a line of credit through a credit lender, or the bank that will be providing the financing. This bank pays one of three credit bureaus for your FICO credit score. The credit bureau, either Equifax, Experian, or TransUnion, depending on who your lender uses, then pays a company called Fair Isaac.

A consumer’s credit score is a calculation of the risk a lender will be taking in loaning the individual money. Equifax, TransUnion, and Experian all track individual’s fiscal habits: their debts, payment habits, etc. Their compiled information must be placed into a formula, the FICO formula that Fair Isaac owns, in order to pop out a number that is the consumer’s credit score. The FICO model is very widely used. It is the formula vastly preferred by lenders, who find it predictable and reliable. This is understandable; Fair Isaac has been involved in the credit industry for nearly half a century, and 80% of major lenders use their system to calculate credit scores.

The credit bureaus would benefit greatly from not being required to pay the top of the totem pole (FICO) every time they run a credit report. To that end, they have developed and promoted their own credit scoring system, dubbed VantageScore. There are a few differences evident already between the two systems. Most notable to consumers, the VantageScore model employs a different numerical scale than the FICO system. FICO runs from 300 to 850. The VantageScore model runs from 501-990, and is set up in a grade school fashion. 501-600 is an F or failing rating; 601-700 is a D or poor rating; 701-800 is a C or fair rating, etc. While this may seem like a benefit due to its more logical numbering, consumers will now be assigned two different credit scores depending on which system is being used.

Credit bureaus have long complained of Fair Isaac’s treatment of those with short credit histories, or who have few accounts. The big three bureaus feel that the FICO model falsely inflates the credit scores of these individuals, meaning that the FICO scoring underestimates the risk that they may pose to lenders. In launching their new VantageScore system, they claim to have more fairly gauged the risk of these individuals. This could likely mean making credit less attainable for these consumers. If this is the case, more young Americans and those who haven’t actively beefed up their credit portfolios will hurt from the new system.

The exact differences, benefits, and downsides of the VantageScore system versus the FICO system remain to be seen, but consumers should be watchful of how the credit landscape changes for them based on this new arrival.

Business owners must consider how these changes could effect their business scores, because of the major impact it could have on their ability to take out loans, finance projects, or pay employees. Consider your options and discuss them with a financial adviser to figure out what is the best plan for you.

How will these changes impact consumers?

When consumers who are considered authorized users on credit accounts receive their new credit score, it may be significantly lower. This drop may increase depending on how many accounts they are an ‘authorized user’ on. Therefore, these consumers will essentially be losing some of their credit score. There is one group that is positively affected, however. This is the group of users who have late payments or high balances on their credit accounts. These users will actually see a fairly significant increase in their credit scores. This is not to encourage this type of account, however.

What are authorized users on credit accounts?

Quite often, creditors will allow their primary users to add secondary users to their credit accounts without checking the second person’s credit. Although they do not run a credit check, the account user becomes a valid user of the account and the credit account shows up on their credit checks. The authorized user is not liable for any debts incurred by any user on the credit account, which is one of the main reasons they are now being removed from the accounts.

How many people will be impacted?

It is estimated that nearly one third of all Americans has at least one authorized user account on their credit report. This means that nearly one hundred million Americans will be affected by these new credit score formulas. It is important for people to take action to prevent their score from dropping. A significant drop in credit score of nearly one hundred million Americans is a fairly detrimental number and could yield a negative effect.

Why has FICO decided to make this change?

FICO is changing this policy because it is being largely companies that fix individual’s credit problems. In many cases, companies illegally sell access to authorized credit users account, which improves the credit score but harms the user. These costs would often be upward of several thousand dollars. This was a problem that had to be dealt with.
How will people establish their credit without authorized user accounts?

Although being an authorized user was once a great way to build or increase your credit, it is no longer a feasible option. Business owners who are concerned with their credit scores should probably try opening their own line of credit and keeping it intact. This can slowly build credit. One good way to do this is to buy a card that is only used for a few specific things a month, that you were already paying cash for. Setting aside that cash and using it to pay off the card will establish credit. Some banks even offer a credit line of around two to five hundred dollars as an overdraft protection. When the account overdraws, money is withdrawn from your line of credit and when you pay it back it builds your credit. Sometimes people with no or little credit start of with gas credit cards as well.

Business owners must consider how these changes could effect their business scores, because of the major impact it could have on their ability to take out loans, finance projects, or pay employees. Consider your options and discuss them with a financial adviser to figure out what is the best plan for you.

It all started Sunday night, September 14^th when my beautiful wife, De Ann (on the left with Domingo) was at rehearsal with Mr. Domingo. De Ann is the concert master (lead-violinist) with the Las Vegas Philharmonic! She brought my oldest daughter Gracie (7) to the rehearsal.

Mr. Domingo thought she was so beautiful and sat and talked to her for 20 minutes as the orchestra rehearsed! He thought she was just wonderful! Mr. Domingo invited Gracie and myself as his special guests to his performance last night (Monday at Planet Hollywood in Las Vegas)!

The performance was amazing and Mr. Domingo was so nice back stage with more pictures and a special autograph for Gracie!

What does this all have to do with building your business, getting off to a fast start?

Building a business is really all about relationships and connecting to other people. It starts with developing a relationship with your spouse and kids! The more you give and commit to your core relationship the more likely you are to be successful in other relationships!

Check out the Las Vegas Philharmonic’s web site at: http://www.lasvegasphilharmonic.com

Check out Plácido Domingo at: http://www.placidodomingo.com! 

It is shocking that nearly all small-businesses fail in their first months or years of business. One of the primary flaws of the way people run their businesses is being lax when it comes to book keeping and cash flows. It is important for business owners to follow some simple but imperative steps in order to go maintain the success of your business.

One major flaw for new business owners is that they often do not have enough capital, or cash. This is caused by an underestimate of expenses and an overestimation of revenue. Make sure that you do not run out of capital by being conservative with your revenue and expense estimates. It may mean the difference between success and failure for your business.

Another important aspect of your business is attaining forms of business credit, like a business credit card or loan. It is difficult for business owners to understand what is completely necessary to get these types of loans. Quite often, business owners are not given an explanation to their rejection for business credit accounts, and therefore cannot fix the problems they’ve encountered.

One important thing that business owners should do to help ensure their success in credit application is become incorporated. It is a dire mistake for business owners to establish a sole proprietorship. One of these is because you are personally liable for anything that happens with the company. If your company gets sued, your company isn’t the only thing at stake - so is your home, your car, your personal accounts, and every other asset you own. Small business owners should never start sole proprietorships. They also experience taxation policies that are not helpful. If you are registered as a corporation, then you are going to get better credit and will be more successful financing your business. Incorporating your business makes it separates it from you as a legal entity.

In addition, small business owners who open sole proprietorships will use their personal credit accounts to finance their business. But doing this only deepens debt and further puts your business at risk from suffering from poor credit. Instead, incorporating your business allows business owners to attain business credit lines and avoid this dilemma. Incorporating your business actually gives you access to more capital and will improve your chances of success.

Business owners should also consider LLCs, or limited liability corporations. These offer the benefits of a corporation without the downfalls of a corporation. In addition, they protect individuals from having their personal assets taken from them if they are sued or if their company is sued.

It is important for business owners to take these steps in order to maximize their chance of credit acceptance and to maximize their capital. This is one of the surest ways to ensure business success. It is important for business owners to establish good credit and to have the right kind of business so that they can be approved for funding that will increase capital and allow for expansion and growth.

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Small businesses are extremely important to our culture and our economy. In fact, small businesses make up a very significant portion of our economy. They thrive on local business and give life to the monetary heartbeat of America. The financial success of America’s small businesses lies heavily on their ability to attain credit in order to maintain their business.

Open a credit account: If you do not have any credit accounts that list you as the primary user, it may be a good idea to open one or two credit accounts of your own. Make sure they are accounts that you can afford to maintain and pay off. This is a great way to improve your credit score. Especially consider opening an account if you are a woman. Women tend to be authorized users more often than men. This means that women will be more impacted by these changes and should consider their own accounts.

Scott Letourneau is the CEO of Nevada Corporate Planners, Inc and FastBusinessCredit.com and he has a valuable free guide to help small business owners get access to capital plus a new program to help business owners understand the entire credit score formula! Go to our Business Credit Program page for powerful details!

The success or failure of a small business could very well rest on the business owners’ credit scores, especially with the failure of most businesses in the first six months of the business. It is important that business owners are aware of FICO’s many laws and formulas used to establish credit for their customers. This will help business owners make informed decisions about how they manage and deal with their business in order to maximize their chances for a good credit. A good credit score can make or break the success of your business. Here is a guide to how FICO reviews your business and determines your credit score.

Payment history: The history of how well a company pays off its debts is one important thing that FICO looks at when determining a company’s credit. In fact, about 35% of a company’s credit score is determine by this. Payment history analyzes how often debts are incurred, how quickly they are paid back, and whether or not payments are made on time. Of course having some debt is ok for your credit report, as long as you are making timely payments and are responsible about incurring debts.

Amount owed: Another important thing that FICO looks at are the actual amount your company owes in debt. This is important because a company with very major debts are less likely to pay them back and have good credit that a company with appropriate good debts. Make sure that you and your business do not have excessive debts that may look suspicious or caution FICO. This can account for up to 30% of your credit score.

Length of credit: The amount of time debts are outstanding is important to establishing a credit score as well. This is because the longer a debt remains outstanding, or the longer a credit, the less likely it is to be good for your credit score. In fact, the longer you go without paying off a debt the worse it is on your credit. However, a long history of good debt occurrences and reasonable pay-back time frames is a great way to establish good credit. This number actually accounts for around 15% of your credit score.

New credit: The type of credit you have can also greatly affect your credit score. New credit can sometimes be a cause for concern, however as long as it is not terribly excessive or unexplainable. It is also important to maintain a strong debt to equity ratio to demonstrate to credit reporters that you are not in financial trouble. This accounts for around 10% of your credit score.

Type of credit: The type of credit a business has is also very important. For example, if you have a line of credit with your bank, a line of credit with a major office supplier, and a seldom-used credit card account for overdraft protection are good types of credit. However, if you use a line of credit for overdraft protection and it has large outstanding sums on it, this is not a responsible type of credit. Type of credit usually comes out to account for around 10% of your credit score.

No matter what your credit score, it is important for you and your small business that you understand what goes into it.

Whether you are a brand new business, have been operating for a short time, or you have been in business for a while now, establishing and maintaining business credit is a means to keep your business growing and is a natural outgrowth of the reason you chose to incorporate or form the LLC, that is protection of your personal assets including the family home.

Establishing and maintaining your business credit is important to: Build the credibility of your business, Preserve your business’s cash flow, and lower your business’ interest rates, to name just a few. Many small business owners find the task of growing a business and entering the maze of business credit to be overwhelming.

While a business owner may have excellent personal credit, examples of just a few of the matters for your consideration are: What are the two largest business credit bureaus, What credit scores are lenders looking for, How to locate a company to grant your business credit, and Do all companies report to a business credit bureau?

Obviously, all of the issues connected with business credit cannot be addressed in this context. However, there is one basic matter - that of a personal guarantee - to review.

As a business owner, you established a corporation or LLC in order to protect your personal assets in the event of litigation. As a business, you have adequately capitalized your business, are not commingling your personal assets with the company assets and pay attention to corporate formalities.

Those are the steps you were advised to take in establishing your business and they should protect your corporate veil from being pierced in the event someone believes there is a basis for litigation. However, at odds with your careful actions is the world of business credit.

As you open your doors and seek to rent business space, one of the first things that may happen is the landlord, in conjunction with the lease, will seek your personal guarantee of payment.

Next, you contact a bank about opening account and establishing a company credit card. The banker will tell you that you have no corporate history or profile, so it too requires your personal guarantee. At issue: These personal guarantees have opened the door for a potential litigant to pierce your corporate veil in order to reach through to your personal assets.

There are methods to counteract the demands of your bank, which may include: If your business has sufficient capitalization to cover the debt or a means to do so, work with bank on a compromise or an alternate plan, which will eliminate or limit a personal guarantee.

Foundational to good business credit is establishing at least three (3) trade references. Locate these references, one or more of which may be necessary to your type of business, establish a relationship, monitor payment amounts and scheduling and verify that these businesses report your relationship and relationship to the business credit bureau you may be working with.

All in all, your company’s business credit is an important aspect of its future as well as your family’s financial stability.

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Donald Trump says that if you want to be a millionaire, you must get your tax affairs down to the legal minimum.

Money Mastery is a book written by a gentleman named Alan Williams, who said the exact same thing.

There are a lot of reasons for that, but Donald Trump used a slide in a presentation that he allowed my friend Sandy Botkin to use that inspired this article. It’s a very interesting slide. It shows what happens if you’ve got a dollar that doubles every year.

Ok, you start with $1. At the end of year one, it becomes $2. At the end of year two, that doubles and becomes $4. At the end of year three, it becomes $8. At the end of year four, it becomes $16. At the end of year five, it becomes $32. It just keeps doubling.

When you get to 20 years, it is $1,048,576. That $1 bill doubled for 20 years is now worth over $1-million.

Now, watch this. Same dollar doubling, but let’s assume you’re in the 35% bracket. You pay 35% of what you make in taxes, and you add all of the income taxes, the state income taxes, the capital gains taxes, the sales taxes, the transfer taxes, the property taxes, I can go on and on, the hotel taxes, the internet taxes, and gasoline taxes. And 35% is actually conservative.

This time take taxes out of the doubling effect, take that dollar and double it, instead of it being $2, like in the other example, it’s only worth $1.65 because you’ve got to pay at least 35% of that in taxes. And the $1.65 doubling isn’t $3.30, because you’ve got to pay part of that in taxes. It’s only worth $2.70.

Even though it is the same dollar doubling, but now with taxes, take a guess how much that’s worth at the end of 20 years. Remember, the other one was $1,048,000 without taxes. Take a guess how much it’s worth with taxes each year?

Would say probably around $600,000?

Try again. Maybe you’d guess $400,000?

Nope, $400,000 is too high, go ahead give it another shot and try again.

Can’t be less than $300,000 can it?

Much less!

Is it $200,000, less? You’ve got to be kidding! How about $150,000?

Not yet, keep going, one more guess…Less than $100,000?

Yes, much less. You’re never going to get it. It’s $22,370.

That is amazing.

People, you may think I’m crazy so go try it out on your calculator or accounting program and you’ll find its true.

The reason it’s true is not only do you lose 35% on everything you make, but here’s the important point, you also lose all of the interest, all of the compounding year after year.

That is why it’s worth only $22,370. There is nothing more important than tax planning, absolutely nothing. It’s better than a raise. It’s after-tax money.