Your Credit Score

Personal credit score for small companies and businesses is a key consideration to the types of loans and leases you have access to. Other things being equal, the higher your score, the lower the interest rate you will pay on everything. Remember, lenders often won’t know what a great person you are; they can only go by the record you’ve created. Your FICO score, calculated by Fair Isaac and Company, is determined by 3 main factors, which you should be aware of.

1. Payment history on all revolving and installment accounts. Car loans and financing of all types should be paid on time to keep this component high. Late payments signify to the lender that your life details are not being taken care of properly.
2. Credit availability; this means if you have revolving credit (Visa or MasterCard) and your credit limit is $10K, having a balance of $1K (90% availability) is going to give you a higher credit score than having a balance of $9K (10% availability). Lenders want to know that you have cushion in case things don’t go as planned.
3. Length of credit history; the longer you have been financing things, the higher this component is. In other words, if you decide to clean out your wallet of credit cards, keep the older ones and get rid of the newer ones. The older cards will benefit your score. People that pay all cash, all the time is great as long as they don’t ever have to ask for a loan; credit history is important to us average folks.

Small tip – if you’re in a cash crunch and forced to make late payments, pay the larger debts, e.g. mortgage, and delay paying the smaller accounts. Late-pays on mortgages and larger debt will easily knock down your score by 50+ points overnight and is a red flag for lenders who will instantly decline you.

Officers in larger companies won’t be as concerned with their FICO score in regards to their company’s financing ability but we should all manage our personal scores as closely as possible.