I've always heard that you need to have a solid credit history to maintain a good credit score (ours has been consistently high and we follow that guidance). That is why the common advice these days is to NOT close down a credit account. My understanding is that it reflects very well on your credit rating to have a few accounts open that get some activity and are consistently paid in a timely manner.

I don't think it should be that way but I was always told yes, it can hurt. Back quite a few years I only had my car payment and school loan. Even though I was paying everything on time my credit wasn't real great. I got a Visa and started using it as a "debit" (since I used my debit all the time anyhow) and would subtract as I went. Compare every month and pay it off every month. My credit was very high when we went to apply for a house loan but that was a couple years after getting the card.
Might be different since you have a mortgage as well. I hope it doesn't hurt your credit for your loan.

I was also told closing credit cards can put a kink in your credit score?

I'm sure someone here is an expert on this and can help.

I think for a business loan they're going to be more interested in collateral or your business plan etc...

Basically, what are you going to be able to offer up to the bank to secure the loan. When you buy a house or car, the physical item is the collateral. Your credit score just tells them whether you make your payments on time or not.

I would call a few banks and find out what their procedures are for securing a business loan and then you can make sure you have everything they want when you're ready to apply.

When my husband started up his business 18 years ago, we had to sign a document that basically gave them our house if the business went under. I forget now what it was called, but I wasn't a happy camper signing that document! But you have to do what you have to do if you want to secure credit for a business.

I have read that having 1 major credit card is a good thing, only if you use it once a month. Pay it off in full every time you use it and your credit score will be good.

How do you rent a car or buy airline tickets? Some things I just take for granted to pay for with a credit card. I think I would get one VISA or Mastercard - it's a good thing to have for emergencies and you can get one without any fees. You can use it in place of your store card, although I'm sure you're getting some good credit points off your store card payment history.

We have our Debit/ CC but after this question came up last night I wasn't sure if a Debit/ CC (which we always use as debit) was on the same level (does that make sense) as a straight CC.

Our credit report is solid - could be better but there were 2 bumps when the company I worked for went out of business in 2008 and I lost my job. I was out of work for awhile. Easily explainable I've been told and it wasn't our mortgage that was affected.

This is what happened to my DD...her then fiance (now DH) had a credit card that he used and paid in full every month. He had no other debt, made over 6 figures a year and was VERY financially stable. Well, when they went to buy a car, he was TURNED DOWN! His credit score was too low! He did not have sufficient credit rating!

So my DD, at that time an unemployed student, had to co-sign for him. She had an excellent credit score because she carried a small balance and had several credit cards.

Banks look at your debt to income ratio, and to see how much credit you're capable of carrying. We have many credit accounts, and we've purposely kept a very small balance on some (low interest cards) to keep our credit rating up. DH closed a couple of unused accounts, primarily department stores, and his credit took a BIG hit. Because it lowered his overall debt to income & credit availability. It's really crazy, because you try to be fiscally responsible, not use credit or pay it off each month, but you're punished with a crummy credit score.

TT a couple of answers and questions...

First, A debit card is not a debt obligation no matter the name stamped on the front so no it does not assist your credit score nor cause a negative effect.

Secondly, it's not a major carrier card that is an issue, it's something called "revolving debt" (all credit cards qualify equally as revolving debt). It does not need to be a card with a VISA on it, sears is equally the same in the world of credit, it's revolving debt. So what they're looking at is how you use your revolving debt and how you pay it. You want your total revolving debt to not be a huge number, and you never want to be extended past 50% of your allowable limits (so if you have ten grand in revolving debt available you want to average under 5). So if you have some and it's not over extended and you've paid on time you're ok there.

I don't expect you to tell me what the bumps are so I want to give you a few examples of "ok bumps" to see if it helps and a couple of not ok bumps so you can get the lay of the land there as well.

So ok bumps are a couple of late pays (30 day maybe 60 but preferably 30 day late). Another would be over limit during that time, but paid down now. Collection accounts that are explainable but are paid now. And not many of those (like two would be tops).

OK so it's a business loan...first, I'm having some email problems (someone got my password and has been screwing up my account) so don't email me any answers to these questions or anything (just in case...I don't want anyone's personal info mussed up). So I'm going to ask hypothetical questions as if you were at my desk but I 'm not expecting answers...I just want to make you think before you go in for the loan.

OK first pull up your credit info (both of yours) and see what your scores are. If they're in the 700 you're ok...if they're in the 300's you are going to have a great deal of trouble with the business loan. Or as Rickie would say...you got some splain'in to do.

How's your equity situation in the house? Would this loan fit in an under 80% scenario (loan to appraised or tax assessed value). A business loan with personal collateral is easier to get than a straight loan especially if you don't borrow much.

Please tell me you report all ofyour business income and keep decent financials! I can't tell you how many loans i turned down that probably could have been approved if they actually reported their real earnings. What you say you get verses what you report...well that's between you and the IRS....as a banker I only care about what you report.

What's your collateral? If there are assets (aside from personal) that helps, but don't expect a huge LTV on them. Receivables can be taken on a line of credit or loan via UCC if they're formally tracked and under 30 days (unless you do business for a major company who pays slower and you can prove that). What are your receivables? I mean be able to explain who owes you money, who pays you, who's your client, so the banker can make a judgement about your ability to continue working.

All business loans are judged to be paid back from cash flow. Does your business cash flow support the repayment on this loan or are you counting on future cash flow from business that will be happening because of this loan. That's an issue...banks own on past history, not so much future history unless it's under contract.

Is there a future contract? Bring it with you because it's support for the loan.

If you're buying assets, know that the bank wants you in the game too. Many times businesses come in and ask for 100% financing for whatever and the bank's position is that if you're (the business owner) not willing to take a risk on you, why should they?

Do you have five years of good financials? Three? IF there are solid profits, consistant earnings, it's easier. If you have huge ups and downs, be sure to be able to explain them. The bank will average the three years or five to determine what your cash flow is really like.

And last but not least...know what you do for a living and who your competition is. You'd be amazed how many people used to come and and say "I"m gonna be a XXX" and I'd ask why they were going to be so much better of an XXX than the other 40 XXX's in town. Sell your business to the bank...why is your X so hot? Is it the oldest X, the best client service? What and what keeps you in business in this economy?

I hope that helps some? The type of credit you're applying for makes a difference as well. A line of credit is harder to get than a term loan. Collateral counts, and what's the biggest thing....who the heck are you dealing with at the bank? Don't go in and ask a freaking teller for a business loan app. Wait and speak with a business banker (make an appt) don't deal with the 24 year old hottie in new york too hot for her job...oh wait another subject, but actually the same, skip the brainless front desk and ask for a business banker! I approved more loans that had been turned down by branch staff than you can imagine in my career, just because they didn't know what to ask, so when the package when it, they didn't know how to sell it to credit.

Just be prepared for surprises, especially in this economy.

My DH and his 11 partners built a new office building 4 years ago and everything went well initially. The bank was obligated under the contract they drew up to refinance the construction loan when the building was complete and 70% of the office space was under long term rental (minimum of 10 years and a minimum price per square foot). The loan agreement specified that the bank would issue a standard mortgage when these conditions were met.

The conditions were met but the bank had sold the mortgage to another bank and the new bank decided that they wanted 80% rented first. Legally they were wrong - both their attorney and business loan officer readily admitted it. But no one in my DH's office wanted to add more attorney costs by going after the bank. The bank then stipulated that the 12 principals and their spouses had to sign an agreement with their personal property (homes etc.) as collateral to the original loan. We did. They still dragged their heels and by the time they approved the refinance the building was 90% rented.

But it cost the business a good bit of money because the construction loan had a significantly higher mortgage rate than the refinanced mortgage. All in all it was very frustrating. We had no idea as we went through this process when it would finally be resolved.

Oh how helpful you all have been!

Thank you so much Igloo! So very helpful!!!!!

Looks like I'll be charging a piece of jewelry or something a month to my store CC!

maire....I hear ya baby. I'm a banker (or was) and banking has gotten pretty goofy lately. We went through hell financing this house (took six months) with Wells, only to finally have it turned down, not because of us, or our credit, or our ability to repay the very small loan in comparison to purchase price...but because the house is "too big and only suitable as a B&B". Now mind you, I did a little research and found many of the board of director's houses were much larger than our house, but still, some little pin head in lending decided he didn't like a big house so it wasn't financeable. A local bank on it's way out of business financed it in two weeks. (finished the day before they sold LOL). Rediculous.

And to make matters more confusing, our business bank, who we're outgrowing rapidly, decided they wanted an equity position in the house (just like your partners, they wanted the collateral, even if it's unnecessary...and I say that as an educated banker). So they muddied up the deal by taking a second AND THIRD position (abundance of caution, but still mortgages) on this house. So if you look at the house, you'd see that our first mortgage is less than the land value of the house, and then on top of that small debt, we technicaly look like we owe millions over the value of the house. The first deed they took was millions over the house value...so they could have cross collateralized the deal and called it a day, but instead filed the additional one (not a bright banker). The calls I get from these silly "get you out of debt with a refi" guys are almost funny to listen to when I tell them what the listed debt on the house is heh heh They hang up quickly.

I understand a cautious banker. Heck I was a pretty conservative one, but they're getting just nuts lately. The cost to maintain the extra deed positions in our property and on yours is rediculous, especially when they have an obligation to refi under specific terms (and ours was also a refi gone south by the bank...our situation didn't change...the bank's did). And the thing is, if a regulator comes in and audits our file they would see these silly mortgages and it would actually be a ding against the bank's credit quality, but the lender is so stupid he didn't understand that (I actually had a regulator explain it to him and he didn't get it). Dumb dumb dumb

Oh and that reminds me...you said you didn't want to file suit, but you can still complain. I'd package up the original deal docs and the "new deal" and send them with a complaint letter to their regulating agency. Believe it or not, it will cause them some difficult because they'll have to formally respond and that will stay on their public file for some time as an unfair lending complaint. They will also have extra costs associated with their regulatory visits because it will require extra file reviews. It's really just "revenge" but it could help someone else down the road and can't hurt you at all.

My one thing I didn't add tt is that if you do have a relationship with a bank or credit union, (one that can do business loans) be sure to go there first. If you don't have one, do some research and see who the number one business lender is in the area (I'm assuming this is a small business with sales under one million...or that you want to borrow less than a million and the data for that type of lender is available, plus they normally advertise they're small business lenders). If it's more than that, than go where you have your business relationship.

Oh Igloo - I would have thought with your experience that you could have avoided the hoops the banks want you to jump through. The partners did discuss filing a complaint but they were dealing with a local bank and didn't want to cause problems in case they wanted to do future business with them.

I really appreciate a cautious banker. We deal with several banks and I have 2 that are my favorites for personal banking- Hudson City Bank in New Jersey which is gets high ratings from the NYT, WSJ and several other financial publications. And TD bank - which bought out my local Commerce Bank.

Neither of them were involved in the mortgage mess because they didn't make loans unless both the property and the applicant met appropriate standards. If only some of our 'too big to fail' operations were so thorough.

Now if only I could find a bank that was willing to pay more than 1% interest.

ttodd - good luck with your banking.

LOL Maire I wish I could have talked them out of it. As it was we did reduce the list or requirements significantly from what they originally asked for. We know we'll pay those underlying deals off in a couple years so we just decided to go for it so we could move on. And then I convinced DH to hire a very conservative and fabulous commercial banker as our CFO which has been really nice. He knows way way more than me when it comes to big finance and he's been a godsend for the company. If I could advise any company I'd say hire a good banker to manage the money :) But only if they work for you, not the bank!!!

Igloo posted such dead-on comments that I'm almost reluctant to add anything. Especially about the debit card NOT being a credit card nor counting as credit even if you use the MC/Visa feature. And even when a card has been paid off, it can carry good weight for your score if you keep it open.

Revolving credit does not affect your score as favorably as a standard MC or Visa. That is, if you have a choice, get a real Visa or Mastercard--Not a Home Depot or J.C. Penney or Macys card.

Also, just for regular use, you need to know a couple of things about bank debit cards. You have more fraud protection with a Visa or Mastercard than with the bank debit card, so if you are buying a big ticket item or off the web, much better to use the credit card. Also, to rent a car, you need a credit card, not the debit card or cash.

I hope things go well for your business loan.

Red