If you applied for a mortgage a couple of years ago with a 620 credit score you were good to go. If you applied for a commercial lease with a 650 or above credit score and had 2 years or more time in business, you could be approved upwards of $150,000 with just a signature. That same commercial business today might have a problem getting approved for $25,000. In the past, any credit score over 700 would get a huge smile and thumbs up from your credit officer. Now, if your credit score is below a 740 you might run the risk of not being approved or having an increased rate due to your “lower” credit score. What used to be considered great is now only good and people are paying higher interest rates or making some changes to their credit to increase their scores.
Here are some examples that I have run into in the past month of how people have been directly affected by their credit scores:
1) I had a customer who was a 739 score when we funded a deal for her in October 2009. When we repulled her credit bureau recently her credit score had dropped to a 698 because she put a new washer & dryer on a store credit card. That increase in her revolving debt totals caused her available revolving debt to lower and the combination of the two made her score go right under the 700 mark that many banks require. She was still approved for her lease, but at a higher rate than she had expected.
2) A repeat customer came to us for another $20,000 lease for a new trailer. His credit and pay history in the past were very good. When we updated his credit there was an auto loan showing past due with a lot of recent slowness. We found this was an auto loan he had co-signed for his son who wasn’t paying well. Because of this auto loan derogatory, his score went to a 632 and we were not able to get him financed at a competitive rate, even though he handled his own credit perfect and paid all of his business debts.
3) Credit bureaus and banks are now penalizing specific geographical regions due to the high delinquency and bad debt they have experienced in them. I had a customer who was approved 6 months ago with a bank and decided to hold off on the equipment at that time. When he reapplied recently his credit was the same, but the same bank would not approve his loan because he lived in Florida which was now a restricted state for that bank.
So what can you do to make sure your credit score is where you want and need it to be?
There are a number of steps you can take yourself to help raise your score anywhere from 10-20 points or more in a short period of time:
1) First, you need to know what your credit score is. There are several sites where you can get free credit reports. Just beware of pitches for over-priced credit-monitoring services, which can cost more than $100 a year.
2) Correct any inaccuracies- Consumers can improve scores on their own, but I would caution anyone doing it themselves to make sure you do it properly. If done incorrectly, it could cause you to not be able to fix it in the future. There are credit agencies who offer clean-up services that can be recommended to you. We have a company I could refer to you who charges a minimal fee and will do it right the first time (http://www.newwestcc.com/default.htm). This minimal $295 fee is easily recouped by lower interest rates on your future finance agreements and leases.
3) Decrease your revolving debt totals and increase your available credit. This can be done by paying down balances or increasing credit limits. Ideally, you should keep all of your open credit card balances from 0% to 30% of the total available credit. Do not close the credit cards you have $0 balances on, keep them open even if you do not plan on using them. I’ve seen people increase their credit scores by 90 points or more just by paying off the right credit cards.
4) Limit inquiries and who pulls your credit bureau report. Every time your credit bureau is pulled it can affect your score.
The most important recommendation I can give is to know your credit bureau score and to monitor it on a regular basis. When you know you are going to be looking for financing in the near future, check your credit bureau and clean up any potential issues before you apply at your bank. Talk to the bank you are looking to use to find out what their guidelines are so you can make sure the application and approval process goes smooth for you. For more information on this topic and to get a free credit bureau report, visit https://www.annualcreditreport.com/cra/index.jsp.