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The Anatomy of Your Business Credit Score

Aug 19, 2008
The success or failure of a small business could very well rest on the business owners' credit scores, especially with the failure of most businesses in the first six months of the business. It is important that business owners are aware of FICO's many laws and formulas used to establish credit for their customers. This will help business owners make informed decisions about how they manage and deal with their business in order to maximize their chances for a good credit. A good credit score can make or break the success of your business. Here is a guide to how FICO reviews your business and determines your credit score.

Payment history: The history of how well a company pays off its debts is one important thing that FICO looks at when determining a company's credit. In fact, about 35% of a company's credit score is determine by this. Payment history analyzes how often debts are incurred, how quickly they are paid back, and whether or not payments are made on time. Of course having some debt is ok for your credit report, as long as you are making timely payments and are responsible about incurring debts.

Amount owed: Another important thing that FICO looks at are the actual amount your company owes in debt. This is important because a company with very major debts are less likely to pay them back and have good credit that a company with appropriate good debts. Make sure that you and your business do not have excessive debts that may look suspicious or caution FICO. This can account for up to 30% of your credit score.

Length of credit: The amount of time debts are outstanding is important to establishing a credit score as well. This is because the longer a debt remains outstanding, or the longer a credit, the less likely it is to be good for your credit score. In fact, the longer you go without paying off a debt the worse it is on your credit. However, a long history of good debt occurrences and reasonable pay-back time frames is a great way to establish good credit. This number actually accounts for around 15% of your credit score.

New credit: The type of credit you have can also greatly affect your credit score. New credit can sometimes be a cause for concern, however as long as it is not terribly excessive or unexplainable. It is also important to maintain a strong debt to equity ratio to demonstrate to credit reporters that you are not in financial trouble. This accounts for around 10% of your credit score.

Type of credit: The type of credit a business has is also very important. For example, if you have a line of credit with your bank, a line of credit with a major office supplier, and a seldom-used credit card account for overdraft protection are good types of credit. However, if you use a line of credit for overdraft protection and it has large outstanding sums on it, this is not a responsible type of credit. Type of credit usually comes out to account for around 10% of your credit score.

No matter what your credit score, it is important for you and your small business that you understand what goes into it.
About the Author
Scott Letourneau is the CEO of Fast Business Credit, Inc. and has a valuable free guide to help business owners get access to capital plus a new program to help business owners understand the entire process from bank lending to understanding their business credit score! Go to our Business Credit Program page for powerful details!
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