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Credit Score Formula Changes, Impact on Small Business Owners

Aug 19, 2008
Small businesses are extremely important to our culture and our economy. In fact, small businesses make up a very significant portion of our economy. They thrive on local business and give life to the monetary heartbeat of America. The financial success of America's small businesses lies heavily on their ability to attain credit in order to maintain their business.

Recently, FICO has changed some of its rules for the credit approval systems for these businesses. It is important for business owners to understand these changes to the credit score formula. These types of changes may affect some of the decisions business owners make for the success of their business and it is important to pay close attention to these changes.

FICO has announced that authorized users on credit accounts will not have that credit account factored into their credit scores. In other words, credit determine by a credit account for the primary user on the account. This means several things for a small business owner as a credit holder.

Loss of credit: Small business owners should be aware that their credit scores might likely drop because of this change. They are essentially losing credit because they will no longer get credit improvement for being an authorized user on a successfully managed credit account. Business owners should look into their credit to see how many accounts they are on where they are listed as authorized rather than primary. Be mindful that the more authorized accounts you are on, the lower your credit may drop.

Fraud: If you actually had to pay to have your name added as an authorized user on a credit account, you should be aware that you might actually be guilty of fraud. Business owners should be aware of this and have their names immediately removed from any accounts that they paid to have their names added to. The last thing a small business owner needs is a fraud lawsuit coming up on their record. It is best to stay away from these types of accounts all together.

Stop adding yourself to new accounts: Especially newlyweds or business partners. If you are considering having a joint credit account, do not. This decision could only put your small business in jeopardy. Consider opening two separate credit accounts with your name only as a primary user. This is the only way to ensure you maintain a good credit score.

Open a credit account: If you do not have any credit accounts that list you as the primary user, it may be a good idea to open one or two credit accounts of your own. Make sure they are accounts that you can afford to maintain and pay off. This is a great way to improve your credit score. Especially consider opening an account if you are a woman. Women tend to be authorized users more often than men. This means that women will be more impacted by these changes and should consider their own accounts.
About the Author
Scott Letourneau is the CEO of Fast Business Credit, Inc. and has a valuable free guide to help small business owners get access to capital plus a new program to help business owners understand the entire credit score formula! Go to our Business Credit Program page for powerful details!
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