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									                                                         Credit                                                  adapted from Yvonne Phelps

    Once you've identified your start-up costs, an             55 To inform the creditor via writing that you're
    important next step is to examine your credit                 disputing information in your credit report, follow
    situation.                                                    these steps:
                                                                       Include copies of supporting documents.
   One myth that often ensnares entrepreneurs is that
 5 personal credit and business credit are entirely                    Request that a creditor provide you with
   separate things. The fact is business credit builds         60          copies of any correspondence it sends to
   off of your personal credit. That's why it's                            a credit-reporting bureau.
   important to examine your personal credit                      Personal credit reports are easily available via
   situation prior to seeking any business financing.             three major credit bureaus: Equifax, Experian and
10 Without a history of business credit, lenders are              Trans Union. Business credit reports are also
   left with an entrepreneur's personal credit when            65 available from those sources, as well as Dun &
   determining whether to provide start-up capital.               Bradstreet.

   It's crucial to check your credit report to ensure             Lenders depend on credit scoring systems to
   there are no errors in need of correction before               determine whether a business owner presents a
15 approaching lenders. The same holds true for                   risk when applying for a loan. Credit scoring
   entrepreneurs with a history of business credit.            70 factors such things as an individual's bill-payment
   Such credit report errors can happen when:                     history, late payments, collections and number
                                                                  and age of accounts. A statistical program then
          A person applies for credit under
                                                                  compares that information against the credit
             different names (Michael Smith, Mike
                                                                  performance of individuals with comparable
20           Smith, and so on).
                                                               75 profiles. The program awards points for each
          A clerical error is made in reading or
                                                                  component of a credit report based on the
             entering name or address information
                                                                  likelihood that someone will repay a debt. Those
             from a written application.
                                                                  points add up to a credit score that creditors and
          An inaccurate Social Security number is
                                                                  lenders then use when considering funding a
25           given, or a lender misreads the number.
                                                               80 business.
          Loan or credit card payments are
             accidentally applied to the wrong                        Credit scoring basics What happens
                                                                  Developing a credit scoring model:
   Meanwhile, credit report errors are fairly easy to                 A creditor examines a random sampling
30 correct by contacting the credit reporting bureau                      of its customers.
   and the agency that provided the wrongful                   85     It analyzes the information to identify
   information to the bureau. The Fair Credit                             anything that has to do with
   Reporting Act requires both these entities to                          creditworthiness.
   correct bad or incomplete information in your                      Each factor is assigned a weight based
35 credit report. The process of correcting errors is                     on its strength as a predictor of good
   fairly simple.                                              90         credit risk.
   To inform the credit bureau in writing what you                    A credit scoring system cannot use
   think is inaccurate, follow these steps:                               certain characteristics, such as race, sex
                                                                          or religion.
         File a dispute. (Credit bureaus must
40           investigate disputes within 30 days.)                Improving your credit score:
         Include copies of supporting documents               95      Pay your bills on time. Payment history
             that support your dispute.                                   is a big factor. Late payments generally
         Clearly name each report item that you                          add more risk to a person's credit profile.
             dispute.                                                  Identify your outstanding debt. If
45       State the facts, explain why you are                            outstanding amounts are close to your
             disputing.                                       100         credit limits it could significantly
         Ask for deletion or correction of said                          hamper your efforts to attain a good
             items.                                                       credit score.
         Enclose a copy of your report with the                       Examine the length of your credit
50           questionable items circled.                                  history. Your credit history is a track
         Send the letter via certified mail.                 105         record of sorts. An insufficient history
         Request a return receipt.                                       can have a negative impact, although it
         Maintain copies of the dispute letter and                       can also be offset by such things as
             related attachments.                                         timely payments.
                                                                       Be careful when applying for new credit.
                                                              110         Models often look at the number of

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                                                           Credit                                                       adapted from Yvonne Phelps

              times a person has inquired into new                      In addition to knowing how credit scores are
              credit. Several inquiries over a short                    tabulated, it's additionally important to understand
              time period can adversely affect your                     what exactly goes into your credit report.
              credit score.                                     170          Credit report information Details
115          Tally up how many credit accounts you                          Personal information Name
              have. The number – and kind – of credit                        Address
              accounts under your name is a                                  Social Security number
              distinguishing    characteristic  often                        Date of birth
              utilized in credit scoring. Too many              175          Employment information
120           credit accounts can be a negative                              Credit accounts Account types (bank
              influence on your score.                                           card, auto loan, mortgage and so on)
    Credit scoring reliability:                                              Date each account was opened
         To maintain validity, credit-scoring                               Credit limit or loan amount
             systems must pull from a large pool of             180          Account balance
125          examples. While often varying from                              Payment history
             creditor to creditor, most credit scoring                       Credit applications Voluntary inquiries
             systems evaluate millions of applicants                             (when an individual makes a credit
             with consistency and by a variety of                                inquiry)
             different characteristics.                         185          Involuntary inquiries (when lenders
130      When properly designed, a credit                                       order an individual's credit report to
             scoring system helps ensure impartiality                            consider offering pre-approved credit)
             and accuracy when making credit                                     Public record and collections Public
             decisions.                                                          record information from state and county
         Many creditors design systems that refer              190              courts
135          applicants with marginal credit histories                       Information on overdue debt from debt
             or not-quite-high-enough credit scores to                           collectors, bankruptcies, foreclosures,
             credit managers for credit consideration.                           lawsuits, wage attachments, liens and
      Dealing with denied credit or bad terms:
           The Equal Opportunity Act requires                  195 Understanding what goes in to your credit report
140           creditors to provide reasons for denying              can help you clean up any problem areas in terms
              credit within 60 days.                                of credit. This, in turn, will better position you for
           If denial was based on too many credit                  qualifying for the start-up capital you seek.
              accounts or being too close to credit
              limits, try paying down balances and/or
145           closing some accounts. Then reapply.              200
           When credit is denied because of your
              credit report, you can obtain the name
              and contact information of the credit-
              reporting agency that supplied that
150           information under the Fair Credit
              Reporting Act.                                    205
           If you're offered an insufficient rate on
              credit, you can ask the creditor whether a
              credit scoring system was used and, if
155           so, what factors were considered when                     QUESTIONS TO ANSWER IN CLASS:
              coming up with a rate. Check your credit                  1) Why or why not does a weak credit keep you
              report – inaccuracies can enable you to           210        from starting a business?
              renegotiate better rates.
                                                                        2) What other things are ‘weighted’ besides
    Examining your personal credit situation – such                        credit reports?
160 as utilizing the above information – can help you
    identify weak spots in your credit report prior to                  3) Why does America have three+ credit rating
    going to a potential lender for important start-up                     agencies; how many are there in Germany?
    capital.                                                    215 4) How does the credit score system work in
    Check your credit report! Inaccuracies can                         Germany?
165 prevent you from obtaining credit or, in some                       5) What do you need good credit for in
    cases, negotiating a decent interest rate.                             Germany or Europe?

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                                                   Credit                                           adapted from Yvonne Phelps

      6) Write two (2) questions of your own for                9) Write two (2) more True               /   False
220      others to answer in class:                     260        statements based on the article:
         A. ________________________________                    T/F     Personal credit is different from business

                                                                T/F     ________________________________
225      B. ________________________________

                                                                T/F     ________________________________

                                                        270             ________________________________
230 7) List five (5) words you didn’t know and
       their meaning:                                           10) Write two (2) more Multiple Choice
                                                                    statements based on the article:
         A. ___________________ ____________
                                                                You can improve your credit by:
                                                                A. never being in debt.
                                                        275 B. always making the minimum payment.
                                                                C. quoting the Equal Opportunity Act.
                                                                D. reducing the number of your credit cards.

         B. ___________________ ____________
240          ________________________________


      8) List phrases where you don’t know the          285 A. ___________________
245      meaning although you know the words:
                                                                B. ___________________
                                                                C. ___________________
            ________________________________
                                                                D. ___________________

                                                        290             ________________________________

            ________________________________
255          ________________________________
                                                                A. ___________________
                                                                B. ___________________
                                                                C. ___________________
                                                                D. ___________________

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