What You Need to Know About Your Credit Score

Bob TannenhauserSmall Business Lending

What is a Credit Score: The most commonly known credit score is the FICO score developed by the Fair Isaacs Company. FICO scores range from 300 to 850, the higher the number the better the score. A credit score below 650 may make it more difficult to obtain a loan. Business lenders look to a business borrower’s personal credit as an important indicator of creditworthiness, basically how well do you manage your finances. The higher your score, the better your chances of getting a loan on favorable terms. Get your free Fico score www.myfico.com

How Your Credit Score is Determined: The credit score is determined by using the information contained in your , primarily your payment history, credit utilization (ratio of outstanding debt to available credit), length of credit history, type and mix of credit, and number of credit inquiries. The most heavily weighted factors are payment history, credit utilization and length of credit history.

What are Credit Reports: There are essentially three different credit bureaus each issuing a report on your credit, Equifax, Experian and Trans Union. They gather and compile information about you from vendors, credit card companies, lenders, landlords etc. Your credit report may contain the following information: your name and address, credit card account balances, installment loans, mortgage loans, bankruptcies, foreclosures, collection accounts, closed accounts, charge offs, credit inquiries and payment history for your accounts and loans.

How to Improve Your Credit Score and Keep it High.

  1. Obtain and Review Copies of Your Credit Reports – You should obtain copies of your credit reports from all 3 credit reporting agencies (they may differ in the information provided), examine the reports for any errors or discrepancies and if you find them contact the agency and have them correct the errors. You are entitled to receive a free copy of your credit report from each of the three credit reporting companies every 12 months (www.AnnualCreditReport.com)
  2. Pay your bills on time – As stated above; payment history is one of the most heavily weighted factors in determining your credit score. Late payments stay on your credit report for up to seven years. Charge-Offs, liens and Bankruptcies will have a material adverse effect on your credit score.
  3. Keep your credit utilization low – Carrying high balances in relation to your maximum available credit will negatively affect your credit score. When you use your credit cards maintaining balances of no more than 30% of available credit maximums are helpful. As of rule of thumb use the following scale. Paying off balances in full every month will give the best results. Making just the minimum interest payments will reflect poorly in your score.
  4. Keep Your Credit Cards to a minimum – Credit scores will be adversely affected for individuals with too many credit cards with either large amounts of credit available or with high balances. Keep this in mind as you evaluate that next ‘Free Flight’ offer.
  5. Credit Mix & Length of Credit History – The longer your credit history the better (assuming you’ve been using your credit responsibly) which is logical since bankers like to see a track record. Also having different types of credit accounts is also a positive factor.
  6. Minimize Applications for Credit – Credit agencies record every time you formally apply for credit (when you give the bank authorization to pull your credit) counting it as an ‘inquiry’ and too many inquiries can have a negative impact on your score. By using BoeFly, borrowers and lenders can get comfortable by connecting and the formal application process typically occurs only after both borrower and lenders have agreed to the loan terms.