As we promote the American Dream which includes, for many of you, a dream to own your own business and be an entrepreneur.
And many of you have emailed me and asked me the following question:
“How can I tell if I have what it takes to be in my own business?”
So, we’ve run across a test that actually can determine if your idea of starting your own business has any validity and if you have the kind of focus and determination that it takes to pursue your American Dream.
For example, just imagine how you would react if the first 20 people who you told your idea of starting your own business shot it down. Or, if you failed at your first five attempts to make a go of it, what would your friends say if you decided to start a business for the sixth time?
If those scenarios sound discouraging to you, then chances are you aren’t cut out to be in your own business.
On the other hand, if you didn’t scare that easily, you just might have what it takes. Here are some questions that can help you further assess your aptitude and your tolerance for risk taking.
1. Do you believe……I mean do you really believe in yourself?
I know….I know….It sounds corny, but it really does start with believing in yourself and your business idea.
To hear the experts describe it, they will tell you that the classic entrepreneurial personality seems to combine the self-confidence of former Heavyweight Boxing Champion Muhammad Ali with the eternal optimism of a Chicago Cubs baseball fan who believes his team will win the World Series next year.
Businessmen were studied over a period of time, including many who had failed four or five times in a row, and some of the subjects were absolutely convinced that this next time they were going to strike rich.
That kind of complete confidence ties into another essential trait of the successful businessman and that is the willingness to take risks.
For example, look at someone like Thomas Edison, who had literally hundreds of failures, or Henry Ford, who was told by several potential investors that his idea for making automobiles on an assembly line was never going to work.
Fortunately, Edison and Ford weren’t easily discouraged and they were willing to take a risk and put it all on the line for something they believed they could accomplish.
The question is…..Would you be willing to do whatever needs to be done to accomplish your Dream?
2. OK….you would…that’s great….now how about your motivation?
Even above making money, self employed people are driven by the desire to do something really important……something that can not only change their lives but the lives of others as well.
They don’t view what they’re doing the way a lot of people may view their jobs as a means to a paycheck that allows them to do other things outside of their work. For the self employed, it’s the goal itself that is the most important.
3. Another question to ask yourself is…..How do you see the world?
You see, folks, many successful business owners, in fact, many of them who have appeared on Our American Dream show and shared their story, all had a common thread. They were totally focused on the “Big Picture”, which was their goal of achieving their Dream as opposed to being more focused on the day to day details.
That broad, “Big Picture” perspective comes in handy for dealing with the hurdles and challenges that will certainly be in the path of your pursuit of your American Dream.
What it comes down to is that you must develop the ability to walk into almost any situation, any problem, size it up, and figure it out!
Successful people need to have an ability to be innovative, be a troubleshooter and then a problem solver. They need to have the ability to see a solution before most other people even recognize that there’s a problem. That kind of perspective is absolutely essential for those pursuing their dream of being self employed.
4. Another question to ask yourself is……Do you know what you’re getting into?
When clients come to me with a business idea, I attempt to find out whether they really understand what they are getting themselves into.
I advise them to go speak to other people who have already accomplished what they want to do so that they can hear them talk about what it’s been like in terms of putting in long hours or not drawing a paycheck for themselves until the business is profitable.
Many businesses fail because their owners didn’t spend enough time to determine if there was even a market for their ideas.
They think it’s the best idea ever and maybe they are even able to attract funding for it, but if it turns out that there aren’t customers out there who are willing to pay for it, they have a big problem.
And, if you decide to go into business with a partner, you better each have a clear understanding of what you expect from one another and the business, or you will face major problems.
5. Of course, the obvious question says…….Will you stick it out?
You must be prepared to ride out each stage of your company’s development. Once you’ve attracted seed money from investors who were impressed with your idea, you’ve got to deliver on what you’ve promised.
Whatever your business is selling, you have to be able to stick with that product or that service and make sure it is what the market needs and is willing to pay for it.
You might think that your passion will be enough to keep you going and, believe me, passion for what you’re doing is essential. However, nothing can replace or is more important than plain, old-fashioned perseverance!
6. And finally….the last question is ……. Are you sure the thought of having your own business is part of your DNA?
Are you in possession of all the ingredients we have discussed to be a successful entrepreneur or whether you can learn the necessary traits it takes to succeed?
Even in a down economy, many people faced with job layoffs begin to look inside themselves and discover their entrepreneurial talents while others may need the help of business development programs at local colleges.
Some experts say that learning accounting, how to write a business plan and how to approach investors can certainly enhance your chances for success in business.
I say to them that could be true. However, it’s very difficult for any M.B.A. program or an undergraduate bachelor’s program in business to teach someone how to be a risk-taker and how to believe in something so completely that you simply will NEVER give up their dream.
Because that, my friends, is the final litmus test for anyone wanting to achieve their own American Dream!
To avoid being denied credit, you need to find ways to improve your credit scores. Some tips to help you include the following.
Pay down your credit cards. Paying off your installment loans (mortgage, auto, student, etc.) can help your scores, but typically not as dramatically as paying down or paying off revolving accounts such as credit cards.
Lenders like to see a big gap between the amount of credit you’re using and your available credit limits. Getting your balances below 50% of the credit limit on each card can really help.
While most debt experts recommend paying off the highest-rate card first, a better strategy here is to pay down the cards that are closest to their limits.
Use your cards lightly. Racking up big balances can hurt your scores, regardless of whether you pay your bills in full each month.
What’s typically reported to the credit bureaus, and thus calculated into your scores, are the balances reported on your last statements.
You typically can increase your scores by limiting your charges to 30% or less of a card’s limit. If you’re having trouble keeping track, consider using a check register to track your spending, logging into your account frequently at the issuer’s Web site, or using personal finance software like Quick Books or Quicken, which can download your transactions and balances automatically.
Check your limits. Your scores might be artificially depressed if your lender is showing a lower limit than you’ve actually got. Most credit card issuers will quickly update this information if you ask.
If your issuer makes it a policy not to report consumers’ limits, however, as is the usual case with American Express cards, the bureaus typically use your highest balance as a basis for your credit limit.
If you consistently charge the same amount each month, say $2,000 to $2,500, it may look to the credit scoring software like you’re regularly maxing out that card.
You could go on a wild spending spree to raise the limit, but a better solution would simply be to pay your balance down or off before your statement period closes. Check your last statement to see which day of the month that typically is, then go to the issuer’s Web site about a week in advance of closing and pay off what you owe.
It won’t raise your reported limit, but it will widen the gap between that limit and your closing balance, which should boost your scores.
The older your credit history, the better your scores will be. But if you stop using your oldest cards, the issuers may stop updating those accounts at the credit bureaus. The accounts will still appear, but they won’t be given as much weight in the credit-scoring formula as your active accounts. That’s why we recommend that you that use your oldest cards every few months to charge a small amount and paying it off in full when the statement arrives.
If you’ve been a good customer, a lender might agree to simply erase that one late payment from your credit history. You usually have to make the request in writing, and your chances for a “goodwill adjustment” improve the better your record with the company. But it can’t hurt to ask.
A longer-term solution for more severe accounts is to ask that they be updated. If the account is still open, the lender might erase previous delinquencies if you make a series of 12 or more timely payments.
Dispute old negatives. Say that dispute with your dentist over an unfair bill a few years ago resulted in a collections account. You can continue protesting that the charge was unjust, or you can try disputing the account with the credit bureaus as “not mine.” The older and smaller a collection account, the more likely the collection agency won’t bother to verify it when the credit bureau investigates your dispute.
Some consumers also have had luck disputing old items with a lender that has merged with another company, which can leave lender records a real mess.
Dispute significant errors. Your credit scores are calculated based on the information in your credit reports, so certain errors there can really cost you. But not everything that’s reported in your files matters to your scores.
Here’s a list of negative items that’s worth correcting with the bureaus:
• Late payments, charge-offs, collections or other negative items that aren’t yours.
• Credit limits reported as lower than they actually are.
• Accounts listed as “settled,” “paid derogatory,” “paid charge-off” or anything other than “current” or “paid as agreed” if you paid on time and in full.
• Accounts that are still listed as unpaid that were included in a bankruptcy.
• Negative items older than seven years (10 years in the case of a bankruptcy) that should have automatically fallen off your reports.
You actually have to be careful with this last one, because sometimes scores actually go down when bad items fall off your reports.
Some of the negative items that you probably shouldn’t worry about includes:
• Various misspellings of your name.
• Outdated or incorrect address information.
• An old employer listed as current.
• Most inquiries.
If the misspelled name or incorrect address is because of identity theft or because your file has been mixed with someone else’s, that should be obvious when you look at your accounts. You’ll see delinquencies or accounts that aren’t yours and should report that immediately.
However, if it’s just a mistake by the credit bureau or one of the companies reporting to it, it’s usually not much to worry about.
Two more items you don’t need to correct:
• Accounts you closed listed as being open.
• Accounts you closed that don’t say “closed by consumer.”
Closing an account can’t help your scores, and may hurt them. If your goal is boosting your scores, leave these alone. Once an account has been closed, though, it doesn’t matter to the scoring formulas who did it, you or the lender. If you messed up the account, it will be obvious from the late payments and other derogatory information included in the file.
Other actions to beware when you’re trying to improve your scores:
• Asking a creditor to lower your credit limits. This will reduce that all-important gap between your balances and your available credit, which could hurt your scores. If a lender asks you to close an account or get a limit lowered as a condition for getting a loan, you might have to do it, but don’t do so without being asked.
• Making a late payment. The irony here is that a late or missed payment will hurt good scores more than bad ones, dropping 700 plus scores by 100 points or more. If you’ve already got a string of negative items on your credit reports, one more won’t have a big impact, but it’s still something you want to avoid if you’re trying to improve your scores.
• Consolidating your accounts. Applying for a new account can lower your scores. So, too, can transferring balances from a high-limit card to a lower-limit one or concentrating all or most of your credit-card balances onto a single card. In general, it’s better to have smaller balances on a few cards than a big balance on one.
• Applying for new credit if you already have plenty. On the other hand, applying for and getting an installment loan can help your scores if you don’t have any installment accounts or you’re trying to recover from a credit disaster like bankruptcy.
By the way, all these suggestions work best if you have poor or mediocre scores to begin with. Once you’ve hit the 700 mark, any tweaking you do will tend to have less of a positive impact.
And if your scores are in the “excellent” category, 760 or above, you’ll probably be able to eke out only a few extra points despite your best efforts. There’s really no point, anyway, since you’re already qualified for the best rates and terms.
A final recommendation to improve your chances of not being denied credit is to join a Credit Union.
Many are locally owned and often are more liberal to granting you credit than a traditional national bank.
To bank with a credit union, you must first have to qualify to be a member. Many credit unions qualify you as a member if you “live, work, or worship” in the town where they are located.
After becoming a member, you pay a “share” into the credit union, which is simply the money you agree to let them use while you’re a member.
So what exactly is a credit union? In the most overly basic sense, a credit union is an institution that is administered by its members for the purpose of pooling together money from these very members. And rather than making a profit, the credit union gives that money back to its members in the form of better interest rates. To put it simply, it’s a non-profit bank which means it has no shareholders, no profit making bank fees. And when was the last time you heard of a credit union in financial trouble?
One important thing to note is that with a credit union, your money isn’t insured by the FDIC. Instead, it is insured by the National Credit Union Association for up to $250,000. That’s the same amount covered by the FDIC.
Most people understand that low credit scores will translate into higher mortgage and credit card interest rates. But few realize there are plenty of other insidious ways that low scores can add to a person’s payment costs.
CAR INSURANCE
The fact that some companies base auto insurance premiums on credit scores comes as a surprise to most of the clients who we help.
In fact, according to a recent survey by Conning & Co., 92 of the 100 national and large insurance companies use this avenue. Some only apply it on the initial application for insurance, others pull your score every three years. Thirty-eight percent of insurers who responded to the survey use credit to determine eligibility into different underwriting programs. Fifty-two percent use it to determine both eligibility and rating classification.
The bad news is that consumers with bad credit scores pay between 20 percent and 50 percent more in auto insurance premiums than those with high scores. That is a substantial difference when you consider all the insurance policies most people buy each year for multiple personal and recreational vehicles they own.
This type of credit profiling is referred to as “Tiered Pricing” in the insurance industry in which different levels of descending credit scores translates to higher premiums. Basically, the insurance industry has correlated folks with poor credit scores to higher risk clients.
Homeowners insurance policies also are subject to this “Tier Pricing”.
CAR LOANS
Recently, the Consumer Federation of America (CFA) announced that its investigation into American Honda Finance Corporation revealed dealers in this car manufacturer’s network charged different markups to customers from different credit tiers. Those in the least creditworthy tier could face prices that were 3.5 percentage points higher than those with higher scores.
Although they have supposedly capped their markups at 2.5 percent, General Motors Acceptance Corporation and Ford Motor Credit Corporation take the same approach.
Did you ever wonder when you walked into a Automobile Showroom why the salesman wants to get your Social Security Number? So that his Sales Manager call pull your credit report and then they can decide what to charge you for the car you want to buy.
People with poor credit usually pay an interest rate between 19 percent and 26 percent on a new car purchase, compared with the 6 percent to 7 percent average.
I don’t know about you, but if I had to pay 26% interest on a car loan, I would start checking local bus schedules!
People don’t equate that into dollars and cents. However, that can be a difference of $100 to $200 a month on your car payment. It certainly adds a lot more interest to the balance to pay off that new car, especially on a longer term seven year loan.
Some Banks have as much as a 10 per cent difference in car loans they approve, depending on that all important credit score.
It always comes down to how the Lenders see the car loan borrower as a risk that they can assess and determine.
EMPLOYMENT
Most employers today take your credit scores very seriously. The fear is that credit problems at home will create stress and distraction at work. In turn, it will negatively affect your job performance. If you are their employee, will you be getting phone calls from collectors at work? Will the employer have to garnish your wages?
I have one client who was offered a 25% raise to switch to another company. She was told all she had to do was interview with a Vice President and she had the job. What they didn’t tell here was that after the Vice President approved her for the position, the Personnel Manager would check her credit. They found that she had some credit problems due to her husband being laid off work for six months the past year. This caused them to be late with some payments and drastically decreased their scores. She was not hired for the higher paying job!
Today, 70 percent of companies will check credit before they decide to hire a prospective employee. Larger companies are more likely than small ones to check your credit.
HOUSING
Rental Property Owners and their Management Companies will reject tenant applications with poor credit scores as they associate low scores with tenants who will either pay their rent late or not at all. No Landlord wants a tenant like that as it will cost them a lot of money for a legal eviction. And, the Landlord depends upon collecting the rent on time so that he can pay his mortgage on the rental to his Bank.
UTILITIES
Most families who apply to Utility Companies for service when renting or buying a home are shocked that their credit scores are checked. Poor credit scores usually require a much higher deposit paid upfront before the telephone company will connect your line or the electric company will turn on your lights in the new house.
CELL PHONES
These providers increasingly rely on credit scores to sort the good risks from the bad credit. And bad credit definitely doesn’t get the best deals at Verizon. Instead of contract plans that offer more minutes for your dollar and come with a wider selection of phones, those who do not make the credit cut must use prepaid cards for cell phone service.
DOCTORS
I had a client who was considering laser eye surgery, the doctor immediately pulled her credit score to see if she qualified for his monthly payment plan. Otherwise, the cost of the procedure was due before surgery was scheduled.
This also happens with Plastic Surgeons, Oral Surgeons, and Orthodontists for the kids’ braces.
SCHOOL LOANS
I know a son of a friend of mine who was turned down for a student loan to attend Medical School because of his poor credit score.
He isn’t alone. I have also watched other individuals delay their college plans when their scores disqualified them from university and federally funded loans. And in this case, it isn’t a matter of having to pay a higher interest rate because of poor scores.
It’s black and white. You either get financing or you don’t. Poor credit getting in the way of achieving your educational goals is a high price to pay.
MARRIAGE
Most folks think that a married couple has a combined credit score. Nope. You can’t marry your way out of a bad FICO rating, and many times a large difference in credit scores between partners causes too much tension for the marriage to survive. I have personally known couples who called the wedding off when a poor credit score was disclosed.
Can you imagine your fiancé telling you, “Sorry, honey, I love you, but until you get your credit score up to 700, the wedding is off.”
For example, let’s say one of the engaged parties own a home. If the owner spouse dies, the home and mortgage become part of the estate. If the surviving spouse wants to take over the mortgage, he or she needs to qualify with credit and income to the Bank holding the home loan. Most people rely on the fact that they’ll live to pay off the mortgage, so this isn’t a concern. Big mistake!
Unfortunately, more Americans are becoming very much aware that credit can affect most aspects of their lives. The need to have good credit today is not just an option, it is a necessity to be able to live a full and productive life.
People with poor credit scores will continue to be victimized by Banks, Employers, Landlord, Utility Companies, Doctors, and even a potential spouse unless they take action and get some help with their credit scores.
