How Important is Your FICO Score?

New small business owners may start out with the mindset that their personal FICO score is not important for business purposes.?Then they load up their personal credit cards with business expenses as they’re starting out and their FICO score starts to fall…700…675…650…625…605…

Once their credit cards are tapped out, the owner goes into the lending market armed with their strong bank statements and their first P & L, which they’re proud to say shows just a small loss.?The owner starts to hear, “If not for your low FICO, we could have…”

Lenders are free to set their minimum scores at whatever level that they want, but most keep the minimum at about 650.?They understand the overlap between personal and business financial affairs for a typical small business owner, but they don’t want to lend to someone who is dealing with extreme financial issues on both sides, which is generally a recipe for disaster.

Business owners would be wise to monitor their personal FICO scores and take appropriate action if there is an issue.?Here are some strategies:

·?????High Debt Usage Levels-??Strategically pay down certain balances to improve your score.

·?????Derogatory Items- Question them by writing letters to the three main credit bureaus.?Even if they are correct, these derogatory items will be removed if the creditor doesn’t respond to the credit bureau’s inquiry.

·?????Avoid Having a Thin File- Sometimes people have a good FICO but there is nothing behind it—they’ve used very little credit.?In this case, take out some personal credit and stay current with your payments.

Some credit monitoring services give you the ability to look at “what if” scenarios, such as what if I paid off a particular credit card, what would my new FICO score be??If your situation isn’t too complicated, this type of tool might be enough for you to raise your score.?Things like derogatory items, collections, and bankruptcies, however, require a different kind of expertise and you may want to contract with a credit repair expert---just be careful how much you pay them and try to get a recommendation.

The bottom line is that keeping your personal FICO score healthy may be one of the most important things that you can do as a small business owner to keep your business attractive to lenders.