Fix Your Credit Score

Most people who approach us to help them write business plans and organize their businesses will at some point need to obtaining financing. If you are worrying about losing your job or dreaming of starting a new venture or perhaps looking to take advantage of the SBA loans while in the next few months while their fees are still suspended, then pay attention now! The process of fine-tuning your idea and researching and writing your business plan may take some time, but there is something that you can focus on immediately to improve your chances of getting a good rate on a loan: your credit score. Obtain your FICO score immediately. If your credit score is not as good as you would like it to be, then you need to do some work to improve it.

An excellent score is a score greater than 750. So what do you need to do to move yourself towards that number? First of all, you need to have some revolving credit lines and you need to hang on to them and manage and protect them for a long time. For credit companies, a long time means about 20 years. My oldest credit card is 14 years old and that only gets me a GOOD rating for that portion of my credit score. If you do have a few old cards that you are not using, assign a recurring purchase such as a monthly charitable deduction to those cards to keep them active. In this time of tight credit, credit companies may take away cards that are not active and that hurts your credit rating by reducing the amount of total credit that you have available.

This brings us to the second piece that you need to manage, your credit utilization rate. EXCELLENT credit scores require your credit utilization rate to be less than 20%. Less than 10% is preferrable. This means that if you have $50,000 available credit on various cards, your total amount actually charged should be less than $5000. The point to a credit card is that you make purchases and then you pay them down to $0, preferrably by the next payment due date so that you do not incur any finance charges. Credit cards are one of the most expensive ways to finance purchases with rates often between 10-33%. So if you are looking to make a purchase that you cannot afford to pay for within the next month or two, consider a different type of loan or even think of saving up ahead of time for the purchase. Stay on top of how much you have charged in a given month. If you have a credit card limit reduced or a card closed, then you will need to pay off some of the debt on your card even faster to keep your credit utilization rate in line.

The most important factor when managing your credit score is to pay on time. Mark the due dates on your calendar; check your amounts due and arrange payment on-line instead of waiting for statements to come in the mail. If paying by mail, send it 10 days ahead of the due date. Whatever your trick, just make sure that you pay on time. This is a high-impact part of your credit rating and it is the simplest thing that you can take action on.

What if you haven't been able to pay down your credit cards yet? Consider reallocating your budget, dropping or reducing one or two items and directing that money toward your credit card payment. Or consider taking on a second job until your cards are paid off and allocating all of that second income to your debt payments. If you are thinking of starting your own business, you could even hold onto that second job for a little while after your debts are paid off to build up some of the equity savings that you will need in order to obtain financing for starting your business.

You can’t watch the news or read a paper these days without the topic of health care reform coming up. It is hard to get through the rhetoric and decide what our legislators should do. I do know this: my family has been through several serious health issues in the last 18 years and they have had an impact on our bottom line. My daughter was diagnosed with leukemia when she was seven weeks old. She went through 28 months of chemotherapy and we are blessed to say she is cured. The bill for her first month of treatment, which did include a helicopter ride to Madison, a week in the ICU, surgery, numerous blood transfusions and several doses of chemotherapy, cost $52,000. Fast forward 18 years and this year my husband developed a herniated disc in his neck. He had outpatient surgery and was in and out of the hospital in 12 hours. The bill from the facility was $56,000. Just for the facility. Something is clearly out of line. We are fortunate to have health insurance through my husband’s employer who has felt the impact of our health woes as well. The company was dropped by their carrier the year after our daughter was diagnosed and when they found a new carrier, the rates were significantly higher. This resulted in a larger portion paid by the employees which meant less take home pay for all of them. Uwe Reinhardt had a commentary on the CNN website this week that was very informative. “Milliman Inc., an employee benefits consulting firm, publishes annually its Milliman Medical Index on the total health care spending by or for a typical American family of four with private health insurance. The index totals the family's out-of-pocket spending for health care plus the contribution employers and employees make to that family's job-related health insurance coverage. The Milliman Medical Index stood at $8,414 in 2001. It had risen to $16,700 by 2009. It is likely to rise to $18,000 by next year. That is more than a doubling of costs in the span of a decade!”
Uwe Reinhardt is James Madison professor of political economy at Princeton University's Woodrow Wilson School. From 1986 to 1995 he served as a commissioner on the Physician Payment Review Committee, established in 1986 by Congress to advise it on issues related to the payment of physicians.
I listen to people rant and rave and fear change. They say we don’t need to reinvent the wheel. I am still not sure what the answer is but we do need change and I think we need less shouting and more listening if we are going to solve this problem. Go to CNN.com and click on commentary for the entire article. Susan

Transitions

Our local newspaper has an ongoing series in the business section about people in transition. That concept resonates with me as summer winds down and the fall begins. When Beth approached me with the proposition to combine our consulting practices, it was a perfect time to undertake such a project. My kids were both at a stable point in their lives with my daughter half-way through her senior year of high school and my son finishing up middle school. Stephanie had already been accepted into college so I could focus all my energies into starting up a new business. As a new school year approaches, I’m very glad I have work to keep me busy! My husband and I will be taking Stephanie to Madison on August 27th to begin her college years at UW-Madison. We know she will do well and have a great college experience, but we will miss her a great deal. My son will be starting high school this fall so he will also have plenty to keep him occupied so he won’t miss his sister as much. I’m not sure the dog is going to enjoy all these changes. He likes having the kids home in the summer and he definitely has not liked my working this much.

We seem to be entering a transition time in the economy as well. The S&P 500 went over a 1000 this week for the first time in nine months and the housing market is starting to stabilize in many key areas. It remains a good time for all business owners to keep reviewing their business plans, studying their financial statements and considering their options for the future so they will be ready to reap the benefits of a rebounding economy. Many people fear change, but when faced with new challenges and situations, its best to consider them an opportunity rather than am obstacle.

Susan

Working from Home in the Summer

Summer is a difficult time to be working out of a home office. When I first began working out of the home instead of in an office, I did it right. I set up an office area with my own computer and printer, files, resources, office phone, and, most importantly, a door. I made lists, designated office time, and worked efficiently during those hours. Eventually, as my children grew and were eventually gone to school all day, and with the purchase of my first laptop, I found myself migrating to my favorite areas in the house to work instead of staying in my office. It was sunnier in my kitchen, beautiful in my garden, comfortable in my living room, and so that is where I found myself working.

There have been a few days this summer that have forced me to retreat back to my office just to get things done. Friday was one of those days! My husband was getting ready to leave for a hiking trip with his friends and sat down next to me in the kitchen to talk just as I was reviewing a client's notes for a business plan that I am helping him write and preparing for a telephone interview which was to take place in 45 minutes. We had plenty of time to talk prior to that moment, but he was busy packing. I did take my phone call in my office, but was interrupted by my 17 year old answering the home phone and actually bringing it to me while I was talking on my business phone. Trying to restrain the sarcasm in my voice I asked her to take a message. Then I was interrupted when my daughter left for work, my husband left on his trip, my son needed me to take him to the store, and so the entire day continued. By 5:30 I didn't feel as though I had accomplished much at work, and I hadn't taken a working vacation day either (you know, the days when you decide that you are going to take a vacation day to get all of your housework and errands accomplished). It was sort of that land in between that work-at-homes experience.

As I thought about this, however, I realized that I have actually become spoiled by the focused quiet time that I get during the school year when I am working at home. I remember back to the days in my cubby in the corporate world when I was interrupted constantly by team members, colleagues, and bosses with questions, requests, demands, or just to chat. So, while I may be lax with my workspace during the school year, I need to reinstate my office rules during the summer months when everyone is home and when my husband takes much of his vacation so that I can get my work done and actually enjoy some vacation time with my family before the winter snow flies again.