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5 Common myths that may be affecting your business credit score

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Your business credit score is critical

Balboa Capital, a leading independent financing company that specializes in equipment leasing and small business loans, announced the results of its mid-2014 small business survey that was sent to over 450,000 small business owners and more than 35,000 equipment dealers throughout the United States. The July survey reveals that concerns about the US economy have decreased and that small business owners and equipment dealers plan to invest in their operations during Q3 and Q4.

That’s great news, but what are these companies doing to help or hurt their credit score so they can actually make those investments?

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Balboa Capital has offered the following commentary, outlining the five common myths they say could be affecting your business credit score:

Not everyone understand how business credit works

As we all know, a good credit score is one of the most important aspects of financial stability. Lenders, landlords, insurers, and utility companies all examine this rating; therefore, failing to maintain a good credit score could put a strain on one’s financials. With so many misconceptions surrounding what helps or hurts a credit score, it can be difficult to separate fact from myth.

Even the most well-informed consumers do not fully understand how credit scores work and may still believe in some of the most common myths about them. The following guide will help clear up some of these credit score myths and provide tips to keeping your score in the best shape possible.

Myth 1: Checking your credit hurts your credit score

One of the most common beliefs about credit scores is that checking your own credit will lower your credit score. Fortunately, requesting a copy of your own credit report will not have an effect on your credit score. Your credit score is only impacted when the credit check is made for credit cards or loans.

This myth can be very dangerous to your credit score as it discourages you from monitoring your credit report. It is important to review your credit report periodically to identify and address any inaccuracies. Keeping an eye on your credit report will allow you to confirm that your payment performance is accurate and will enable you to remove any accounts that are falsely reported. Errors on your credit report can put a damper on your credit score and impact how lenders evaluate your credit worthiness.

Myth 2: Paying your bills on time is all that’s necessary to keep a good credit score

Many consumers believe that all they must do to keep a strong FICO score is pay their bills on time, but there is more to a good credit score than just a good payment history. Paying your bills on time accounts for just 35% of your credit score. The other 65% is comprised of the amount owed (30%), length of credit history (15%), new credit (10%) and type of credit (10%). It is important to take all of these components into account when reviewing your credit profile.

It is also important to note that your credit score is impacted by both positive and negative information on your credit profile. Late payments will have a negative effect on your score; however, if you improve your payment habits and consistently pay on time, you may see an increase in your credit score.

Myth 3: Lowing your credit limits helps your credit score

Asking your lenders for lower limits does not necessarily improve your credit score. In fact, maintaining substantial credit limits can actually help your score so long as you do not run up the debt to the maximum limit. When reviewing your credit profile, most lenders look for a fairly wide gap between the limit available and the actual amount of credit you are using.

As you know, your FICO score is based on a number of calculations. How much debt you owe makes up 30% of your score and can be calculated using your debt-to-available credit ratio. Debt is how much money you owe on all your credit cards, and the available credit is the sum of all the credit lines that are open. The lower your debt-to-available credit ratio the better your score. Therefore, if you reduce your credit limits but maintain the same debt, your debt-to-credit ratio will increase and can reflect negatively on your credit score.

For example, if you have $3,000 debt on your credit card with a limit of $10,000, you’re debt-to-available credit ratio is 30%. If you were to lower your credit limit to $7,500, you’re debt-to-available credit ratio

Myth 4: Closing a credit account can help your credit score

Closing credit cards does not help your credit rating. In fact, when you close an account your credit score may take a hit. Because the length of your credit history makes up roughly 15% of your FICO score, closing a credit card with a long payment history could be detrimental to your score.

If you stop using one of your oldest credit cards over a period of time, the card issuer may stop reporting updates on the account to the credit bureaus or close the account altogether. Even if the account still appears on your credit report, this long-standing credit account will not positively impact your score as much as it would if it were actively being used. The longer your credit history, the better. So it may be good for your score to keep an older account open and use the card at least once a month.

If you feel you must close an account, it is better to close the most recently opened cards first. For example, if you recently opened up a credit card to receive a discount, this would be the account to consider closing first.

Myth 5: Opening many credit cards is good for my credit score

Very often, many consumers believe having several active credit cards help improve their FICO score. However, the truth behind this myth depends on a number of factors. Depending on your overall credit history, opening several credit card accounts can actually hurt your credit score. For instance, having several credit cards with either high balances or high credit limits can have a negative effect on your credit score.

Regardless of the number of credit cards you have, whether 5 or 25, maintaining high balances can hurt your FICO score. To lenders, having high balances on credit cards indicates you may be a higher risk and this can impact whether credit is extended to you. Furthermore, having high debt-to-credit ratios on your open credit accounts will not help your credit score either. Overall, opening too many credit cards only affects your credit score if you don’t handle them properly.

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Business Finance

Private unemployment insurance exists – it’s limited, but it exists!

(FINANCE) Entrepreneurs – you know you’re supposed to have six months of income saved up in case of emergency, but another cushion is private unemployment insurance – it exists!

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Everyone knows that it’s important to have that reserve of funds stashed away in case of an emergency or a layoff, but it’s often hard to establish it—especially as a young professional or an entrepreneur. Even more daunting is building that reserve of funds to cope not only with a potential emergency, but a job loss.

If you lose your job, you may be eligible for unemployment benefits from your state — depending on a whole host of factors, including cause of termination and your classification as an employee. Often those state benefits are very limited in either duration or in payment, which doesn’t provide the newly minted job seeker with much in the way of time or funds to keep things afloat while they look for their next job. To offset that limitation, there are private unemployment solutions that do exist, albeit limited in scope.

For years, IncomeAssure, which began in 2011 and was issued by SterlingRisk and backed by Great American Insurance, was the largest private unemployment insurance policy. With about 1,000 active policyholders and over $1 million in claims paid out as of 2016, the policy is no longer accepting new applications for coverage as of late 2018, but is still insuring those with an active policy.

“It has been disappointing that we haven’t been able to find a cost-effective way to get the word out that this exists,” David Sterling, SterlingRisk’s Chairman and CEO, said, speaking to The New York Times in 2016. “It’s also understandable. If nobody is aware that something exists, it’s hard for people to find it if they don’t know to look for it in the first place.

With the closure of IncomeAssure as an avenue for new coverage, SafetyNet is another possibility for private unemployment insurance, depending on where one lives. Presently available in 10 states, SafetyNet provides their policyholders with a one-time lump sum payment between $750 and $9,000, depending on the coverage option selected at the time of inception. The monthly cost of SafetyNet varies by state and protection level, and is far less than the traditional policy that was offered by IncomeAssure, as the payment is correspondingly reduced as well. However, as a lump sum option, the ability to quickly access needed cash is a boon to those who may find themselves in need of it.

As with most insurance plans, there are certain exclusions to the SafetyNet policy. These include:
• A pending job loss that the client was informed of prior to purchasing the coverage, or job loss due to acts of war, criminal misconduct, or nuclear/natural disasters
• Job loss due to quitting or retirement, or are termination for cause, including for poor job performance and improper workplace behavior
• Any job loss within the first 90 days of coverage
• Any disability that starts within the first 6 months of coverage if caused by a pre-existing condition treated in the 6 months prior to coverage
• Any disability that occurs in the first 90 days of coverage, or any disability due to normal pregnancy, alcohol or drug use, or elective surgery
• Normal and routine downtimes and workforce reductions for seasonal and other jobs (like construction) or job loss because the task the employee was hired to do was completed or the time period covered by the employment agreement came to an end.

While no one would argue an insurer’s right to protect itself against issuing a policy to cover employment loss for those who sought to quit, retire, or get fired through poor choices on the job, some of these terms should be a caveat emptor for those who have medical conditions that may extend beyond FMLA coverage or whose workplaces are in areas prone to natural disasters, as neither of those conditions may be covered.

For those who are classified as independent contractors, however, the market for private unemployment insurance remains limited. In most states, independent contractors aren’t eligible for unemployment benefits, and neither IncomeAssure nor SafetyNet extended their protections to that segment of the workforce either.

For independent contractors, facing periods of unemployment is one of the hazards of the role. When such a period comes, the independent contractor should invest the time to review the conditions of the work that they did for their last employer to ensure that they were classified correctly as independent contractors, and weren’t mis-classified employees, who would be then eligible for state unemployment protections. (The IRS has simplified the independent contractor test to three broad factors with 11 conditions: behavioral control, financial control, and type of relationship).

Although the marketplace for private unemployment insurance appears to be limited, it’s worth it to ask your insurance professional of any options that may be available to you in your segment of the workforce as a part of your annual insurance review.

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Business Finance

Startup offers Kickstarter campaign analytics so you don’t fundraise blindly

(FINANCE) If you’re considering using Kickstarter to fund your next big idea, you need to be armed with data so you’re not going about it blindly.

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You might have heard the common adage “if you fail to plan, you plan to fail.” If you’re starting a company, this rings especially true.

Whether you’re building software or a physical product, there are a lot of strategies to take into consideration, especially if you’re crowdsourcing funding.

If you’re planning on fundraising on Kickstarter, take a look at BiggerCake.

Created by Tross, a crowdfunding data and consulting firm, BiggerCake allows you to take a deep dive into the analytics behind a variety of Kickstarter campaigns.

(Author’s note: we normally don’t write about companies using Kickstarter because scams are rampant, but we know Kickstarter has been a useful tool for a lot of companies.)

So here’s how BiggerCake works. Campaigns are separated into categories by industry, like art, design, journalism, and technology. From there, you can see within each category like most funded, most backers, and highest average pledge:

biggercake

Let’s take Salsa for example, a photobooth built to help you make money — it’s already raised over 817% of its goal and almost $250k.

You can see the data behind the backers and pledges from a daily and hourly standpoint, as well as a favorite feature of mine: the ability to view average funding per day and average funding pace, since you don’t want to end your campaign too early.

Don’t be an idiot: always look at the data. Seriously though, if you’re planning on using crowdfunding to finance any of your company, please take some time to look through this resource.

It’s an easy way to learn from other makers’ successes and failures from objective, data-based standpoints. And you know how we love some good data.

Besides the funding pace and average pledge, take a look at common themes among the most successful Kickstarter campaigns on BiggerCake, and ask yourself some of these questions:

-What time is best to release my campaign?
-Is there a common thread among the copy or graphics/videos?
-What are the most successful incentives?
-How can I emulate the best campaigns?

The best part? It’s free. And after taking a look at the ToS, it doesn’t look like there are any big catches, so take advantage of this free resource while you can.

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Business Finance

Your 401K balance could be lower than what you see on paper

(FINANCE) Your 401k balance is looking good, but there are factors you might not be taking into account (including the fact that you need to stick with your current job a little longer).

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Most of us want to retire at some point, and as you do your yearly finances (taxes, retirement, etc.) you may be looking at your 401(k) account and have some thoughts in mind.

Many Americans don’t have any retirement savings, so if you do – you may be feeling good.

But it is important to note that while your balance may look good, you may need to reexamine – because you may not have the full amount that you see.

There are a couple of things to consider if you determining if your balance is appropriate and on-track. (Most financial experts say you need to have at least 10 times your salary saved by age 67 – FYI).

There is of course, the fact you will have to pay taxes on 401k withdrawals eventually, and there are of course fees associated with your 401k – service fees, investment fees, and plan administration fees. You will want to take a look at that – at some point.

The most pressing question right now – Your employer sponsored 401k most likely has some kind of match. Ideally, you’d take advantage of that max – as not contributing the amount to get the maximum match is basically giving away free money however, that money may not be yours yet.

You may not be eligible to take it if you leave or change employers if you have not met the vesting period (usually 3-7 years) for your current employer. With the median length of tenure for salaried employees being 4.3 years – it is very possible you may lose some of that balance if you move or change careers.

And remember, the balance you see in your 401k account doesn’t include the taxes you’ll have to pay when you ultimately use that balance.

So what can you do?

Check your plan details. You may need to contact the plan administrator or someone at your HR department. If you are considering changing your careers, be mindful that you may forfeit some of that balance.

You may need to talk to a financial advisor to ensure you can reach your goals.

Also, while you are examining your plan, ask yourself If you need to consider adjusting your investment strategy to accommodate your retirement goals. Also, while you are considering your 401k – consider other IRAs, Health Savings Accounts, or other investments and ensure you are on the right track.

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