One of the things that has effected this downturn more than anything else is the tight credit standards that all of us are dealing with. It is effecting the ability of business owners to expand and grow their business and it is effecting customers and client’s ability to purchase products and services. So what is really happening and what can we do about it?
For many business owners credit cards and home lines of credit have been the main source of credit to fuel various parts of the business. It is not unheard of today that these home lines of credit are being cut at will by the banks.
The same has occurred with credit cards. In several cases companies like American Express have placed charging limits on clients who have good credit and never been late with them. The main reason why this is happening is due to the fear caused in some parts by the increasing amount of delinquencies.
Unfortunately, the lending institutions are making broad strokes in their decisions . The pendulum has now swung to the opposite side. A few years ago anyone who could fog a mirror was given credit. Today the same lending institutions have tighten so much that only those with perfect credit and income are given some credit. These new lending practices have already impacted many industries and is one reason why the economy has not rebounded as quickly as before.
Another thing to note is that the model that is used to calculate the FICO score is one that is adjusted over time. In other words the rules have changed and will change again as our lending environment changes. Therefore, you cannot rely on what the rules were a few years ago.
Here are a few key issues that will affect your credit score
First begin by obtaining a copy of your FICO credit score. This is the only score that matters. So do not waste your time and money getting the ones that are offered through the various credit agencies. To get your FICO score buy it directly at www.myfico.com/12.
Once you have the report get rid of anything that is incorrect as soon as possible. Things like incorrect addresses and aliases that may appear. You want to also pay close attention to derogatory items that do not belong to you. These days we cannot afford to have errors on the report when the banks are looking at these reports so closely.
Another item that can affect your credit score is showing too much credit outstanding. Your credit score will drop if the ratio between what you have outstanding is larger than 7% to 10% of the credit line. In other words if you have a $2000 credit line your credit score will drop if you have more than $200 outstanding! Even if you are paying it off every month and never been late. One way to fix that is have your credit line increased.
A third thing to remember is make sure to pay the creditors that report to the credit agencies first and foremost. Remember that utilities and creditors like the cable company do not report to the credit agencies and are usually willing to work a payment plan out. So, if things get tight it is best to make sure that the credit cards are being paid first.
Finally, beware of credit repair agencies. The Federal Trade Commission has warned about the legitimacy of these organizations. There is no quick fix to most serious credit problems.
Customers and Clients need Our Help
The problems mentioned above do not only affect business owners they are also affecting the customers. Today, many businesses are dealing with declined credit cards along with less buying power. This is why major retailers such as Target and Wal-Mart have brought back the lay-away plans of yester year.
For informational marketers it has meant the need to offer payment plans where a purchase is broken down into two maybe three payments over a few months. Other businesses have gotten creative and provided for multiple credit cards to be used in a single purchase. In this way the customer can pull together various credit lines to buy the product or service. It is important to make these
The topic of credit is a very large one and we have only begun to scratch the surface. The fact remains that this is a subject that has a direct impact on our life styles and business. Having a better understanding of strategies about how the system is now working will help us in navigating through these tight credit times.