A FICO score remains important for small businesses. Because it helps these businesses get loans. But a recent webinar revealed more. “Financial Innovation and FICO Score: What Does it Mean for Small Business” examined what goes into the FICO score. And it looks at how your FICO score can be improved.
How to Improve Your FICO Score
Check out these 10 things a small business can do to improve its FICO score. Remember, good FICO scores range from 750 to over 800. While a FICO score of 250 won’t cut it.
Know What’s Included
FICO scores draw from records of repayments. The credit bureau keeps records of how good you’ve been at repaying money. Collection information and hard credit inquiries get recorded too.
Know What’s Not Included
Age, address, employment, income and gender aren’t included.
“Income is the largest myth people feel is included into the score,” said Joanne Gaskin. Gaskin serves as Vice President of Scores and Analytics at FICO.
Check Out your Industry-specific FICO Score
The higher your score, the less risk you present. That means you’ll qualify for more money. And this industry-specific score goes up to 900.
If you fit into certain industries, you will qualify for a better number. These include businesses using credit products like mortgage loans. But credit card businesses and the auto industry are included too.
Watch Outstanding Credit Card Debt
FICO looks at credit card utilization carefully. This means the amount being used on cards. Futhermore, FICO looks at the big picture. And it gauges use across all your credit cards.
Likewise, your business spending should remain well below the limits. It also helps making more than minimum payments.
Monitor Your Installment Loans
Small business owners and sole proprietors may pay on numerous loans. You might have a home business and a mortgage. And paying down these improves your score.
Don’t Open Too Many New Accounts
“The average number of months that an account has been opened is a key variable for a FICO score,” Gaskin says.
So resist opening a bunch of new credit accounts at once. You’ll find it tempting for a start up. But it could cost you a good rating.
Watch Your Credit Mix
Lenders also look at all the loans you have. Having a good mix here lowers your risk. Having a few different types of loans improves your FICO credit score.
Get Errors Fixed
You may get a blemished credit report through no fault of your own. Credit bureaus make mistakes after all. So see these credit bureaus correct any outdated or incorrect information.
Try the FICO Small Business Scoring Service
This tool automates the approval process. And it offers a base line scoring model lenders can use to make decisions quicker. And the SBSS uses cloud based services.
Polish up your credit score using other tips listed above. Then use the SBSS to speed things up even more.
Take Advantage of the UltraFICO Score
This tool works for folks who don’t have enough credit history to generate a regular FICO score. It covers the 53 million consumers who don’t have a credit score. UltraFICO operates as pilot project now. But company officials expect a full launch by year’s end.
Understand How the Score Works
“This is information that would be permissioned by the consumer,” Gaskin says. The company models this credit score on tools like checking accounts.
Millennial small business owners and recent immigrants can take advantage of this. And they can use this UltraFICO Score to allow more access to credit.
Remember this One Statistic
Finally, remember one last statistic regarding your FICO score. And this explains why it’s important to take the score more seriously.
“These scores are used on more than 90% of the credit decisions made by lenders,” said Gaskin.