5 Factors Used to Score Your Credit
Ahhh…the credit score. Most small business owners know the importance of those three little numbers that lenders use to determine the risk of lending you money. Here’s information you need to know to achieve and maintain a high score.
Credit scores range from 300 to 850 and reveal financial stability and responsible credit management. Experian, Equifax and TransUnion are the agencies that compile credit scores, known also as FICO scores. The goal here is to achieve the highest score possible. You might have slightly different numbers from each agency but they will all be similar as the score is based on the same criteria.
The following are the five components that affect your score.
Payment History – 35%
Can you be trusted to repay money that is lent to you? Payment history shows that you’ve paid your bills on time for every account on your credit report and will also show late payments. Were you 30 days, 60 days or 90+ days late? The later you pay, the worse your score. A big red flag is if your payments have gone to collections. Charge offs, bankruptcies, foreclosures and law suits are all red flags.
Amounts Owed – 30%
How much of the total credit available to you have you used? Accounts like a mortgage, car loans or credit cards all count. To achieve the highest score in this category, have a mix of credit types.
Length of Credit History – 15%
A long credit history (if you’re in good standing) helps strengthen your score. If you have a short credit history, you can still score high in this area if you’re in good standing on all accounts.
New Credit – 10%
According to the site MyFico.com, research shows that opening several new credit accounts in a short period of time represents greater risk – especially for people who don’t have a long credit history. Your FICO Scores take into account several factors, including how often you shop for credit.
Types of Credit In Use – 10%
Your credit mix is another important factor used to determine your score. To achieve a high number, you’ll need to show that you can handle a variety of loans like a credit card, a car loan, etc.
Small business owners can get discouraged when a less-than-stellar credit score affects their ability to secure funds. But by paying attention to the factors above, it is possible to raise your score.
SmartBiz is one company that welcomes back customers who initially failed to achieve the required credit score. So don’t give up! Keep striving to achieve the highest number possible and you can expand your small business dream.
NOTE: Although a “hard pull” of your credit can lower your score, SmartBiz initially uses a “soft pull”. This will not show up an as inquiry on your report.