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    Financing Big Projects and your FICO Score

    fico-credit-score

    [dropcap]W[/dropcap]e all have been given gifts for the specific purpose of utilizing those gifts as we interact with the world around us. Whether your gift is song writing, vocal ability, composition, administration, management, producing an album or all the above, we are sometimes limited in how many people we are able to reach with our gifts due to a lack of financial resources.

    Whether you do it part-time from your family home or are able to do it full-time out on the road, your musical talent is your career, your business, and your profession. Sometimes, in order to move your business forward, you need to plan and initiate a big project (like producing a CD or a massive marketing campaign) in order to effectively get your message out to the world. However, those types of endeavors cost money that you might not have readily available.

    So now what? First, if you haven’t already, begin saving and create a plan with realistic goals. It is also important to get professional advice to ensure you are not overextending what you can realistically afford.

    Once you have a plan, one option is to submit it to a crowd-funding site like Kickstarter.com. This is a great resource for funding creative projects.

    Don’t rule out banks, but they may be a bit more stringent on the rules for loan qualification. If you don’t meet the criteria for a typical bank loan, there are many enterprising companies that will consider providing loans to a variety of ventures that banks wouldn’t consider.

    One very important factor in determining the amount you pay for any type of loan is how much interest you will be paying on that loan. That interest rate is determined in large part by your FICO score. A great score could literally save you thousands of dollars in interest payments, just as a poor score could eliminate you from a loan altogether.

    So what is a FICO Score based on? We’ve explained it for you here:

    35%      Payment History

    If you are late on a payment for more than 30 days, when it is reported to the credit bureau, it could drop a high score down 150 points or more.

    15% Age / Length of Credit History

    Creditors want to see longevity in the ability to consistently pay the bills.

    10% New Credit / Inquiries

    Signing up for a new credit card while in line at a department store just so you can have 10% off your purchase may not be worth it, as inquiries hurt your credit score for 12 months. This could lower your FICO Score and prevent you from getting the best interest rate possible on loans and mortgages.

    10% Types of Accounts

    This is referring to what kind of accounts you are carrying on your credit: mortgages, car loans, revolving debt, personal loans, payday loans, etc.

    30% What you Owe

    This is the most misunderstood portion of the FICO Score. Many people refer to a “Debt to Income Ratio,” but that is not accurate for determining a FICO score. The deciding factor here is how much credit you have available versus how much you have used. Believe it or not, it is better to have 10 credit cards that have 60% worth of credit left on each card, than it is to have just one credit card that is maxed out. They are looking for a semblance of control.

    By paying down a credit card(s), eliminating some high-interest loans, staying current with your bills and keeping new inquiries off your report, you could earn a FICO score that could make a small business loan workable within your budget for launching your next project. Getting your gifts out to the world just might be worth the sacrifice it will take!

    Guy Hatcher is a Managing Partner at The Company Coach and President at Advanced Planning Inc. Guy has a unique gift for understanding people and their needs, as well as a rare ability to render complex financial issues and business strategies in straightforward terms. Having helped thousands of families and businesses build wealth and enjoy ongoing success, Guy Hatcher is perfectly positioned for the role of coach on your business planning team and board of advisors.

     

     

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