Credit Enhancement is a financial strategy for improving the credit risk profile of an individual or business, usually to obtain better credit or loan terms, including a lower interest rate. Credit enhancement is usually accomplished by: (1) Providing additional collateral, (2) Obtaining a credible third-party guarantee, or (3) Reducing outstanding debt and lease obligations in order to improve cash flow.

Individuals and companies that are concerned about their credit should be aware of the ChexSystems network which is composed of member financial institutions that regularly contribute financial data on mishandled checking and savings accounts among members to help them determine whether an individual or company is creditworthy.

Negative credit can do more than prevent someone from obtaining credit or forcing a borrower to pay a higher interest rate. Bad credit can cost an applicant for a job to be rejected. Approximately half of all employers in the United States now run credit checks and routinely reject applicants with poor credit. Not all information on a credit report is available to employers. Employers must obtain an applicant's consent to check their credit.

An equity kicker is a financial incentive whereby a lender provides credit at a lower than market interest rate in exchange for an equity position in the borrower's company. The equity kicker may take the form of stock or warrants.

 

Piggybacking

Piggybacking is when a person becomes an authorized user on another person's credit card for the purpose of boosting their credit score. This is not to be confused with being a joint account holder. The difference between the two is that authorized users are not legally responsible for charges made on the credit card, whereas joint account holders are.

The authorized user gets the full account history reflected on their credit report. They will get credit information including the payment history, the age of the account and the utilization rate. When these characteristics are positive, they can help to raise an authorized user's credit score. If they are not positive, the authorized user risks lowering their own score.

 

Joint Credit

Joint credit is credit issued to two or more individuals based upon their combined income, net worths, and overall credit profiles and history. It involves shared financial responsibility. Joint credit provides greater access and higher borrowing limits. Most, but not all, joint credit involves two people co-signing a mortgage or partners signing commercial bank loan documents. Having joint credit means all borrowers will have equal access to the account, including access to any line of credits. Not all joint credit or loan documents are the same so they must be reviewed and understood by all parties. The individuals signing joint loan documents should protect themselves by entering into an agreement among or between themselves.

 

 

Lending Circles

 

Creating and participating in a lending circle is a way to establish and enhance the credit score of each participating member. This assumes the organization provides the required reports to one or more credit reporting agencies. A lending circle exists when each member of a group contributes a fixed amount of money each month into a pool. After a certain number of months, one person collects the entire pool. The pool is replenished and the pooling of funds continues. The recipient rotates. No interest is paid on the contributions or payouts. Participants' timely payments can be reported helping them to build a positive credit history. Lending circles are utilized mostly by people needing to improve their credit scores, new immigrants with no credit history, and young people just getting started.

 

Revenue-Based Financing - Royalties

Vendor Financing - Loans

FICO Score - Credit Score

Factoring - Invoice Discounting

Negative Information on Your Credit Reports