

For most small businesses, the owner’s personal credit score will be part of the creditworthiness decision when a lender evaluates your business loan application. As a result, it’s important for business owners to monitor their FICO scores and take actions that will help them build a strong personal credit history.
These are five metrics used to calculate your FICO score, along with the value each contributes to your score:
As a small business owner, how do you build or improve your personal credit score? When making day-to-day decisions within your business, how do you prioritize your efforts to build a strong personal credit score?
As you might expect, some late payments have a bigger impact on your FICO score than others. Your score is most impacted by delinquencies over 60 days. And, the more delinquent, the bigger the negative impact. In addition to major delinquencies, bankruptcies, judgments, and other similar derogatory items on your personal credit report will hurt your personal credit score the most.
Most lenders don’t proscribe a specific maximum debt to income ratio, but maintaining a ratio below 38% (including your mortgage) is considered best practice. Basically, if your revolving debt, like credit card debt, department store credit cards, and other revolving debt, is always maxed out, it will negatively impact your FICO score. Try to not utilize all the credit that is available to you. Next to making all your loan payments on time, this is probably the biggest way to build a strong personal credit score.
It happens--most of us experience times when we miss or are late with a payment. If you are on a threshold between a fair a good score, minor delinquencies could impact your score, but if you don’t allow them to go 60 days, they won’t damage your FICO score much. What’s more, after 12 months of staying current, minor delinquencies won’t have any effect on your score.
The longer your credit history, the better. Basically, the longer your track record of good credit practices, the more positive the impact on your score. And, a shorter credit history doesn’t provide enough track record to positively impact your score.
This is related to the length of your credit history. If your credit history includes a number of different types of credit over a long period of time with a reasonably good track record, it will benefit your profile.
Opening new credit accounts is not an issue, but opening a lot of accounts within a short period of time could raise a red flag.
Similar to opening a lot of new credit accounts, several inquiries in a short period of time could impact your credit score but will only make a big difference if your score is on the threshold of fair to good credit, for example.
Most people put far too much emphasis on the impact of inquiries on personal credit score. It’s much more important to focus your efforts on controlling delinquencies and managing your credit utilization. Those are the areas that will provide you the biggest bang for the buck in terms of building a solid score or improving a less-than-perfect score.
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