One crucial element in creating wealth is one’s creditworthiness. There are five criteria that most lenders use to assess a borrower's creditworthiness: capacity, collateral, capital, conditions, and character.
The standard or quantitative measure is one’s credit score or FICO® Score [http://www.myfico.com]. The FICO® Score is the s, capitacredit score in the US, used in more than 90% of lending decisions, by financial institutions making mortgage loans ]homes] or extending aacredit instrument to entrepreneurs. Access to self-liquidatingacredit instrument is an essential element in the success of a business enterprise and the ultimately creation of wealth for shareholders/entrepreneurs..
Wealth is generally the sum of such major assets as a home and other real estate holdings, stocks and bonds, savings and retirement accounts, minus the sum of debt. Income refers to wages, interest, profits and other sources of earnings. The main difference between wealth and income is that wealth can be passed onto the next generation.
One asset category that is not prevalent in communities of color is equity created in business enterprises – a major distinction and one reason for the wideninga“racial wealth gap”. One common theme for people of wealth is to own your own business.
A mortgage isacredit instrument. Over extended periods of time, homes are typically paid for from income sources and represent one of the major components of wealth. A term loan for equipment or a SBA loan to acquire another business enterprise, for example, is also aacredit instrument. Over extended periods of time, these credit instruments are repaid from the cash flow in the business generated from the effective deployment of the capital in the business. As theacredit instrument is repaid or liquidated in full, the asset acquired has no liens and thereby equity isacreated for the shareholders and/or entrepreneurs.
As an entrepreneur, I became increasingly aware of myacredit scores and the information & data in my credit files. To my amazement, the information was, on occasion, incorrect and not accurate; I was diligent in correcting all errors. Also, I was focused on upgrading my FICO® Score as I needed external bank financing to grow my business. I would adhere to the terms and conditions of my loan covenants so that I could build a good FICO® Score, borrow and repay more loans and create a viable business. Using bad credit installment programs even the most credit-poor people can have access to a loan.
The FICO® Score, in part, pulls from data collected by the three major credit bureaus.
Here's how to contact the three major credit bureaus to ask about or obtain your credit report or credit score, alert creditors to a possible fraud using your name, or for any other reason:
Equifax: 800-685-1111 (general) or 800-525-6285 (fraud); P.O. Box 740241, Atlanta, GA 30374; www.equifax.com
Experian: 888-397-3742 (general and fraud); PO Box 2002, Allen, TX 75013, www.experian.com.
TransUnion: 800-888-4213 (general) or 800-680-7289 (fraud); P.O. Box 2000, Chester, PA 19022; www.transunion.com
In my next post, I will discuss general themes found among wealthy individuals.
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