How to Get Business Credit

December 13th, 2010

I learned a ton of great information from Tom Kish about how to get business credit during Week Two of the Credit and Debt Summit.

Tom Kish is the author of Shortcuts to Money, and he’s one of our experts at the Credit and Debt Summit. Basically, Tom teaches people how to get business credit, and then he teaches them how to use it to expand their businesses. You can download the transcripts from the call by registering for the Summit (registration is free).

Here are three highlights:

The first secret about how to get business credit is this: Don’t apply in your own name. A lot of entrepreneurs walk into a bank and fill out a business loan application using their own name. Kish says the banks will basically laugh in your face if you do this.

Banks want to do business with LLCs, S-Corps, and C-Corps. Banks know that corporations might buy insurance products through the bank, they might build investment accounts or retirement accounts, or they might process their merchant services through the bank.

And being a sole proprietor—even one with a Fictitious Business Names or “DBA”—just doesn’t cut it, says Kish.

But if you register your business as a corporation or formal partnership, the banks will practically salivate at your door.

The second secret about how to get business credit is this: Keep your personal credit score high. A lot of lenders will look at the owner or principal’s credit score when considering a loan application.

This doesn’t mean that you should apply for business credit under your own name. Once again, you absolutely should not. It does, however, mean that your personal credit score might be considered as part of the overall process.

So if you have a bad credit score, be sure you know how to build credit. Namely, get your outstanding debt as low as you can, pay your bills on time, and scour your credit report for errors. (Be sure to come back later for some hot information from Brian Diez about errors on your credit report!)

And the third secret I’ll share is this: Apply for more than one loan. Let’s say you have a business registered as a corporation and you want a $150,000 line of credit. Instead of applying for one big loan, try breaking it into three or four loans that add up to $150,000.

You will have much more success if you start by looking for a bank that will provide you with $30,000 or $40,000 line of credit. Once you secure this loan, apply for another one. And then another.

Heck if you are just getting started, apply for a $5,000 line of credit. Get your foot in the door and get the ball rolling.

One thing you should know about how to get business credit is that getting the first loan is always the hardest step, especially if you don’t have any assets or much history. Look for a bank that provides “stated income” loans that are unsecured. This means that you won’t have to provide tax returns, collateral, or a business plan.

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Buying a Home With Bad Credit and No Money Down

December 1st, 2010

From bird-dogging to seller financing, Carter Brown kicked off the Credit and Debt Summit with six strategies for buying a home with bad credit and no money down. Even if you have a bad credit score and no down payment, Brown explains the six strategies for buying home, or investing in real estate.

Buying a Home with Bad Credit and No Money Down

Carter Brown is a real estate coach for Prosper Learning who started investing in real estate while he was in college. He now coaches other people on out-of-the-box strategies for buying homes or investing in the real estate market. These strategies don’t require any money down, and they can be used by people with bad credit scores.

As part of the Credit and Debt Summit, Brown shared these strategies with registrants:

Assigning contracts
Double-escrow closing
Subject to financing
Seller financing
Lease options
Bird-dogging

Two of the highlights are “subject to financing” and “bird-dogging. “

Buying a Home with Bad Credit and No Money Down Strategy: Subject to Financing

Subject to financing is a perfect strategy for buyers with bad credit and no money down and sellers who are on the brink of foreclosure. It works like this:

The buyer takes over mortgage payments on a person’s house. In exchange, the seller transfers the title to the buyer, but—and here’s the kicker—the seller keeps the loan in his or her name. The buyer, however, starts making payments on the home.

Does this sound crazy? Why in the world would a seller transfer title but keep the loan in his or her name?

It isn’t crazy, and Brown explains why it works;

1. The homeowner (seller) is going to lose the home to foreclosure otherwise. Under “subject to financing,” the seller doesn’t have to go through foreclosure and preserves his or her credit score. Perhaps more importantly, the seller’s financial stresses are over. No longer do they have to worry about coming up with thousands of dollars, negotiating with banks, attempting—and failing—to get loan modifications. The buyer can take over payments immediately, leaving the seller with peace of mind.

2. The buyer and seller can always write a clause into the contract that forces the home to return to the original owner in the event that the buyer misses a payment. And because the loan is still in the original owner’s name, the seller can track the buyer’s payments.

3. Worst-case scenario, the buyer misses a payment and the home returns to the original owner. If this happens, the original owner can start making payments if his or her financial situation has improved. If the original owner’s financial situation has not improved, he or she is no worse for the wear.

Obviously, this strategy is a bit sophisticated. Want the transcripts of Brown’s Credit and Debt Summit webinar? Register for the free summit here and get more details, including information on where you can find qualified sellers.

Buying a Home with Bad Credit and No Money Down Strategy: Bird-Dogging

If “subject to financing” makes you nervous, but you still want to get your foot in the door and start learning advanced techniques for real estate investing, Brown suggests starting with a technique he calls “bird dogging.”

Under this strategy, you don’t actually buy a home, but it allows you to shadow someone who is using outside-the-box strategies, which means you can quickly move up the ladder and start learning about buying a home with bad credit and no money down.

Simple put, bird-dogging is another way of saying that you act as a scout, and you get paid for bringing a seller and an investor together. You also get to shadow the investor so that you learn more about real estate investments.

Let’s say that you are chatting with your neighbor, and you learn that she and her husband are in financial distress. Their house has been on the market for months, but no one is biting. If something doesn’t happen—and soon—the bank is going to foreclosure.

This is where you come in. Simply introduce your neighbor to a real estate investor. Tell the investor that you want to provide a referral for a finder’s fee. If the investor purchases the property, you will receive a fee of about $500.

This isn’t where it ends. Ask the investor if you can shadow the transaction. Let the investor know that you are interested in learning more about real estate strategies. The investor, thrilled that a hot deal has dropped onto his or her lap, will agree.

Brown goes on to describe four other strategies for buying a home with bad credit and no money down. His strategies offer something for everyone—from the seasoned investor to the newbie hoping to get his or her feet wet.

Tags: bad credit, mortgage, real estate

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The Retail Store Credit Card Scam

November 15th, 2010

Been hit up lately by sales clerks promising big savings if you apply for a retail store credit card?

Just about every major clothing, electronics, and department store offers a similar promotion: In exchange for applying for a retail store credit card, you will get a discount, coupons, or special offers reserved for cardholders.

But if you apply for a store-specific card, you will most certainly not save money. And you just might hurt your credit score, too.

Never Apply for a Retail Store Credit Card!

Let’s take a look at a typical interaction at a department store. Imagine that you walk to the cashier with your loot in hand—in this case, let’s say you are buying a shirt and a pair of socks for a total of $62.

The cashier immediately makes you an offer.

“Do you want to apply for a retail store credit card? You’ll save 15 percent on today’s purchases.”

Heck yes! you think, gung-ho to save $9.30.

But the cashier isn’t telling you a few pertinent pieces of information. Let’s take a look at two of the critical facts you should know before applying for a store-specific credit card.

Never Apply for a Retail Store Credit Card

Reason #1: You will pay more than you save.

Many stores promote their retail store credit card by offering a one-time discount on same-day purchases. But you will most certainly end up paying more than you saved. The banks and the retail stores promoting these store-specific credit cards are counting on you spending more money so that they can recoup that discount, and then some.

Consider all the ways the banks and the retail stores can make money off you:

1. If you are given a one-time offer to save on today’s purchase, you just might pile a few more items into your shopping card.

2. In the future, you will be more likely to engage in a little “retail therapy” if you have store-specific credit cards in your wallet.

3. You will be sent coupons and special offers that entice you to the store. Ever bought something just to take advantage of a coupon?

4. And, of course, you will pay interest and fees on the credit card.

Suddenly, that $9.30 savings doesn’t seem worth it, does it?

Never Apply for a Retail Store Credit Card

Reason #2: Your credit score might suffer.

I can think of three reasons your credit score might suffer from a store-specific credit card:

1. Keeping these cards active can be tough.

2. You might end up with too many credit cards.

3. You will definitely add a credit inquiry to your credit report.

Let’s start with the first reason: Keeping these cards active.

An important part of learning how to fix credit is to have the right number of credit cards. To earn the highest credit score, you should have between three and five revolving credit cards. And these credit cards should be active.

Credit-scoring bureaus want to know that you can responsibly manage your credit cards. If you let your credit cards go inactive, the bureaus have no idea whether you are able to manage balances and debt. In other words, inactive credit cards do nothing for your credit score.

But keeping a retail store credit card active can be tough. Are you going to buy a lawnmower from Sears each and every month? Are you sure you need a new Gap sweater twelve times a year?

Most likely, you will either keep the card active by making unnecessary purchases (which costs you money), or the card will go inactive. Either way, it’s bad news.

Let’s talk about the second reason a store-specific card might hurt your credit score.

Like I said, the credit-scoring bureaus are the happiest if you have the right number of credit cards. If you do not have at least three credit cards, they don’t have the information they need to make a judgment about whether you are responsible. If you have more than five credit cards, they know that you are in danger of getting in over your head.

Three to five is the sweet spot. So if you are limited to just three to five credit cards, why waste one on a card that will only be accepted by one merchant? You cannot reserve a car using your Banana Republic card, but you can purchase a suit from Banana Republic using a Visa.

Too often, people apply for retail cards each time they are offered a discount. These people must also carry American Express, MasterCard, and Visas for everyday expenses, traveling, and business needs. And they quickly find themselves carrying a lot more than five cards.

Finally, let’s talk about the third reason a retail card could hurt your credit score: credit inquiries. Ten percent of your credit score is based on the number of credit inquiries you have on your credit report in the past year. If you apply for a retail store credit card, your score could drop a few points, and this could cost you a lot of money in interest on future loans and credit cards.

Of course, department stores and banks will never tell you to avoid retail store credit card offers! Be sure to learn more of their secrets by downloading our free ebook: 35 Important Facts the Banks Won’t Tell You About Credit.

Tags: credit cards, credit scams, credit score

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Automobile Loans After Bankruptcy

November 12th, 2010

Qualifying for automobile loans after bankruptcy might seem daunting and impossible. It may seem that any hope of returning to normality or obtaining something as basic as an auto loan may be completely out of your reach. However, one of the important bankruptcy facts to keep in mind is that by implementing some stiff changes in your behavior and budget, you can repair credit after bankruptcy and expand your opportunities.

Once you exit the bankruptcy process, you may need to acquire a car. Bankruptcy will be a major impediment to your goal, but you do have options. The first and best way to get automobile loans after bankruptcy is to begin to learn how to fix credit after bankruptcy, building up your score high enough to enable you to get a good loan. With bad credit, you may only qualify for a loan with a high interest rate, which will only encourage the likelihood of default or another precarious financial tailspin.

If your need to acquire a car is more urgent and you cannot wait to rebuild your credit and qualify for automobiles loans after bankruptcy, you have several options, most of which can net money that you didn’t know you had. Start by tracking your expenses and learning how to create a budget. You might be able to get rid of several costly items that are draining your money: $5 lattes, valet parking, and even eating out several times a week. Just by picking up some skills behind the stove, you might increase your income by $30 a week. By taking a second job, you will lose some free time, but you can add $300 to $500 a week with a part-time, minimum-wage job. You may not want to work 60+ hours a week forever, but if you are able to afford a new car, it might be worth it for a little while.

Another opportunity for adding to your income can come by asking your boss for an advance on your paycheck. Your employer may be more likely to grant you a loan, plus these type of loans usually don’t have any interest attached to them. However, before you ask your boss for a raise, be prepared to answer some of these questions, including the reason you need the loan, how you will repay it, and why his company should consider doing this. You might also ask a family member to grant you automobile loans after bankruptcy, and you should expect to give them the same solid reasons for giving you the money, maybe even by offering better interest rates than they are accumulating in a savings account.

Credit unions and local banks are also great places to obtain automobile loans after bankruptcy. They may be likely to offer you better terms and lower interest rates than a mainstream lender, particularly if you have already have established a relationship there.

You can consider obtaining a co-signer for a loan, though you will have to give them some special provisions to safeguard the risk they will be absorbing. For example, you might consider giving them the ability to control the payments or access the account online so that they will feel more confident. Though it is a risk, you could offer to pay the co-signer two or three months in advance. They could just take the money and run, but when have poor credit, you don’t always have the luxury of perfect solutions.

Credit repair always your best option. However, if you take a look at your situation and recognize the opportunities around you, you may find plenty of opportunities for automobile loans after bankruptcy.

Tags: automobile loans, bankruptcy, credit after bankruptcy, loans

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Bankruptcy and Student Loans

November 12th, 2010

Those looking to wipe the slate clean and start anew might be disheartened to learn the bankruptcy facts about bankruptcy and student loans.

As you review your assets in preparation for bankruptcy, you may be wondering how many debts you will be able to discharge. If you are like most people, you might still have some student loans left to pay. Unfortunately, the law surrounding bankruptcy and student loans states that you cannot discharge your student debt obligations in a bankruptcy filing.

Bankruptcy and Student Loans Fact #1: You cannot discharge student loans in a normal bankruptcy.

Even though you can have credit card, mortgage, and auto loans discharged during bankruptcy, some debt obligations will stay with you through bankruptcy. You are still responsible for paying alimony, child support, taxes, fines, and student loans through the bankruptcy process. Like the other listed responsibilities, student loans are considered exempt from the bankruptcy process, whether they are federal loans or private student loans. In the case of federal student loans, the government can seize your tax refund or garnish your wages to make sure it collects its money.

In a few situations, student loans can be legally discharged, but they are rare. If you die or are declared 100 percent disabled, your student loan debts will be discharged, and your estate will not be responsible for your debts. In the case of disability, your credit score will not be harmed by the student loan discharge. If you attended a school that closed before you were able to complete your academic program, your student loans will be canceled, relieving you of the responsibility to repay them at all.

Bankruptcy and Student Loans Fact #2: You can request a hardship hearing.

When it comes to bankruptcy and student loans, you should also know this: You can request a hardship hearing during your bankruptcy and present your case to a special judge, requesting that the student loans be discharged. A discharge of student loans after a hardship hearing is extremely rare, but if you think you have a good reason why paying your school loans presents a hardship, talk to a qualified bankruptcy attorney.

Remember, though, that everyone declaring bankruptcy is having a hardship, so your situation will need to be particularly dire. Getting your student loans discharged is a little like getting out of jury duty!

Bankruptcy and Student Loans Fact #3: Some federal programs will pay your student loans for you!

Another interesting fact about bankruptcy and student loans is that you might be able to discharge your student loans by participating in federal programs that relieve some or all debt obligations in exchange for working in programs like Peace Corps, AmeriCorps, or Vista. These service programs might give you a flat amount of money or they could offer to shave a percentage off your loans. By serving in Vista or the Peace Corps, you won’t be making much money, but you could be relieved of as much as 15 percent of your student loans.

If you are currently struggling to repay your student loans, make sure you explore your bankruptcy options before defaulting, including debt consolidation loans. If you talk to your lender, you might be able to arrange a loan deferment or a forbearance, which grants you temporary relief by postponing your loan payments for a specified period of time. You can also work out a different payment plan with your lender to help you make payments every month. Remember that removing a student loan is all but impossible, so you might as well start finding ways to repay your student loans as soon as possible.

If you are struggling with bankruptcy and student loans, it stands to reason that you might have a poor credit score. One way or another, start learning how to build credit so you can build your credit score to 720 as quickly as possible.

Tags: bankruptcy, credit after bankruptcy, loans for bad credit, student loans

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