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What Really Impacts Your FICO Score?
by Ty Kiisel
April 29, 2022
 Confused people are surprised by the financial report.

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:

  1. 35% Payment History
  2. 30% Amounts Owed
  3. 15% Length of Credit History
  4. 10% Type of Credit Used
  5. 10% New Credit Enquiries

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?

Focus on these seven concerns to build or strengthen your personal credit score. These are listed in order of priority.

1. Major Delinquencies and Derogatory Items

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.

2. Revolving Utilization

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.

3. Minor Delinquencies

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.

4. Length of Credit History

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.

5. Thickness of Your Credit File

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.

6. Recently Opened Credit Lines

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.

7. Credit Inquiries

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.

Learn how OnDeck can help your small business.

About the author
Ty Kiisel
Ty is the author of "Getting a Business Loan: Financing Your Main Street Business" as well as a contributing editor for OnDeck, an online platform where millions of small businesses can obtain affordable loans with a fraction of the time and effort that it takes through traditional channels.
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