The FICO Small Business Score provides an easy way for business owners to monitor their credit health and financing potential. Checking the score regularly, at least once per quarter, is a good idea. Understanding how the score is calculated and impacts access to capital can help make the score meaningful.
FICO Small Business Scores are 3-digit scores ranging from 250 to 950, with higher scores indicating lower risk. The score is based on credit report data, public records, collections, and other factors that determine creditworthiness. Even small score increases or decreases of 25-50 points can represent meaningful changes in risk profile and financing terms. Paying close attention to drivers of score changes leads to better credit management over time.
Score updates and full credit reports are available for free through the FICO Score 8 service. To check a FICO Small Business Score, visit the website . There, you will need to provide some business information like business name, address, and tax ID to verify your identity as an authorized user of the business credit profile. The FICO Score 8 service allows up to 4 score checks per year at no cost.
Reviewing scores, reports, and key metrics each time helps the numbers become more intuitive and the risks/opportunities more transparent. Look for positive trends of slow, steady score increases which indicate you are building a good credit foundation for future financing needs. Unfortunately, look for concerning declines in scores or specific problems noted in reports, which require attention and correction.
FICO Small Business Scores provide an objective way to determine readiness for a business loan or line of credit. By monitoring scores regularly over time, any business can stay well-positioned to achieve its financial goals and grow the business. Understanding the language of credit will serve business leaders well for years to come.
How the FICO Small Business Score is Calculated?
The FICO Small Business Score provides an objective measure of credit risk for businesses based on credit report data and public records. The score ranges from 250 to 950, with higher scores indicating lower risk. Several factors determine a business’s FICO Score, including:
Payment History – The biggest component of the score, weighing the most. Payment history on business credit accounts like loans, lines of credit, credit cards, invoices, etc. Over timely payments result in higher scores.
Credit Utilization – How much of your available credit is being used? Keep balances low relative to limits for the best score. High utilization hurts scores.
Length of Credit History – A longer credit history with a mix of accounts in good standing leads to a higher score. New businesses typically have lower scores due to a shorter credit footprint.
New Credit – Opening a lot of new credit accounts quickly can lower your score. New credit inquiries from applications for new accounts also temporarily lower scores.
Available Credit – The types of credit accounts, limits, and available balances are evaluated. More available credit and a mix of installment loans and revolving credit help scores.
Public Records – Judgments, liens, foreclosures, bankruptcies, etc. severely damage scores. Settlements and satisfied/dismissed items can help improve scores over time.
Inquiries – Hard inquiries from lenders checking your credit can lower scores by a few points for a short period. They indicate you are applying for new credit.
Collections – Past-due accounts, charge-offs, or settlements hurt scores for several years. Paying them off helps limit damage over time.
The FICO Score provides an objective measure of creditworthiness to help businesses gain access to financing and loans. By understanding how the score is determined, businesses can develop strategies to continue improving their score and credit profile over the long run. Monitoring scores regularly also ensures risks and opportunities remain transparent for important business financing decisions.
Uses and Benefits of a FICO Small Business Score
A FICO Small Business Score provides valuable insights into credit risk and financing potential. Understanding how the score works, what benefits it provides, and how lenders consider it helps make the number meaningful. Some of the key uses and benefits of a FICO Small Business Score include:
Financing Eligibility and Terms – Lenders review FICO Scores to determine if a business qualifies for a loan or line of credit and what interest rate and terms they can offer. Higher scores mean less risk and better terms for the business. Lower scores may require a larger down payment, higher interest rates, or more restrictive terms.
Monitoring Risk – FICO Scores can go up or down over time based on credit management and financial performance. Regular score checking allows businesses to monitor credit risk and see which factors are impacting the score. This helps identify any new risks or opportunities for improvement.
Benchmarking Progress – FICO Scores provide an objective way to benchmark credit over the life of a business. The slow score increases over time indicate you are building a stronger credit foundation through responsible credit management and use. Larger or more rapid score swings could signal credit risks that require attention.
Predicting Default Risk – FICO Scores are designed to predict the likelihood of defaulting on debt payments over the next two years. Lenders use scores to evaluate default and loss risks for various levels of credit extensions. Businesses can use their own score to determine credit readiness and risk tolerance.
Access to Loans – A higher FICO Score means a lower risk profile and potentially better access to financing options like business loans, lines of credit, equipment financing, etc. Alternative lenders may be more willing to lend to higher-scoring borrowers and may provide better rates and terms as a result.
Business Valuation – In some cases, a business’s FICO Score and credit profile can be a consideration in determining an offering price or valuation when buying or selling a company. A strong score and credit history can mean a more attractive valuation all else being equal.
In summary, FICO Small Business Scores provide meaningful insights to help manage credit risk, gain access to financing, monitor financial progress, determine valuation, and stay investment-ready. Regular score checking leads to a deeper understanding of what the numbers mean and how to optimize them.
Tips to Improve a FICO Small Business Score
There are several effective steps businesses can take to build and improve their FICO Small Business Score over time. Some key tips include:
Pay Bills on Time – Payment history is the biggest factor in your score, weighing the most. Make all payments on time, every time to establish a good payment history. Missing or late payments severely hurt scores for years.
Reduce Credit Card Balances – Keep credit card balances low relative to limits. High credit utilization ratios hurt scores. Aim for 30% or less of limits as a general rule. Pay down balances before interest charges accrue each month.
Don’t Apply for Too Much New Credit Quickly – Applying for several new credit accounts in a short period of time can lower your score. New credit inquiries also impact scores. Only apply for new credit when really needed to help your score.
Check for and Dispute Errors – Check your credit reports regularly for any errors. Then dispute them with the credit bureaus to get corrected. Errors on reports can wrongly lower your score until corrected.
Consider a Business Credit Builder Loan – For young businesses with little or no credit, a small loan can help establish credit when used responsibly. These “credit builder” loans report to the credit bureaus and help build scores over time with ongoing responsible use. But only take a loan if needed.
Monitor Scores and Reports – Review your FICO Score, reports, and key metrics at least once per quarter. Look for positive trends of slow quarterly or semi-annual score increases. Small wins matter as they show you are progressing in developing a good credit profile. Look for any score declines or errors and take corrective action.
Credit Scoring Algorithms Change – FICO Scoring models change over time to keep up with the lending industry and credit risks. What benefits scores today may not be as much in the future. Regular score monitoring helps you understand algorithm shifts and impacts on your score and optimal management practices.
In summary, implementing good credit management practices diligently and consistently helps build and improve FICO Small Business Scores over time. While scores cannot be “manipulated”, smart strategies like these do lead to healthier credit profiles, which continue enabling important business financing opportunities. With patience and persistence, good scores are achievable.
When and How to Check a FICO Small Business Score?
As a business owner, it is a good idea to regularly check your FICO Small Business Score and reports. Checking at least once per quarter, every 3 months, is generally recommended. More frequent checks may be needed if you have recently applied for new credit, taken on business financing, or have concerns about your credit health.
To check your FICO Small Business Score for free, visit the official score service webpage at scoredbusinesscenter.com. There you will need to provide some basic business information like business name, address, tax ID, etc. to verify your identity as an authorized user of the credit profile. You are allowed up to 4 free score checks per year through FICO Score 8.
Your FICO Score will range from 300 to 850, with higher scores indicating lower credit risk. Look for slow, steady score increases over time which shows you are building good credit. Drops in scores of 25-50 points or more could also be concerning and warrant a review of reports and management practices.
Along with your score, FICO also provides credit reports summarizing credit accounts, inquiries, public records, and other information reported on your business credit profile. Review reports closely each time to look for any errors, new risks, or opportunities to improve your score. Common things to check include:
•Payment status and history on all credit accounts, especially loans. Look for any missed, late or delinquent payments.
•Account balances and credit limits on revolving credit like credit cards. Make sure balances are low relative to limits.
•Inquiries from new applications for credit. Only apply for new credit when really needed to avoid score dings.
•Public records like liens, judgments, foreclosures, or bankruptcies. Ensure none are present that should not be.
• Old, past-due accounts that can still be paid to limit the damage. Sometimes settlements can be negotiated to remove fully.
•Errors on reports. Dispute anything incorrect with credit bureaus to get properly corrected.
By regularly monitoring your FICO Small Business Score, reports, and metrics, you stay on top of your credit health and risks. Developing the habit of good report review helps make the language and impacts of credit very intuitive over time. Responsible credit management and score-building strategies can then be optimized based on actual score performance for your business. Check often—credit is key to your business’s success and financial goals.
Conclusion
In summary, FICO Small Business Scores provide a valuable measure of credit risk and financing potential for businesses. Regularly checking scores, reports and metrics leads to a deeper understanding of credit and how to optimize it for important business opportunities. Some key benefits of frequent score monitoring include:
• Transparency into credit risks and strengths. Identifying specific factors impacting your score up or down helps determine where to focus management efforts.
• Readiness for financing needs. Higher, improving scores mean greater access to business loans, lines of credit, and other capital when needed to fuel growth. Declining scores warn of rising risks to financing eligibility and terms.
• Benchmarking financial progress. The slow score increases over the life of a business show you are building credit successfully through responsible use and management. This continued progress keeps the business investment-ready.
• Predictability of default risks. FICO Scores estimate the likelihood of defaulting on payments in the next two years. Monitoring your score helps ensure risks remain at an acceptable level for your financial comfort and responsibilities.
• Identification of errors or fraud. While rare, issues could arise reporting incorrect information on business credit reports and scores. The regular review helps identify any problems early so they can be disputed and corrected promptly.
Good credit scores and reports do not happen by chance. They are the result of diligent credit management and monitoring over the long run. Make checking FICO Small Business Scores and reports at least quarterly a habit. Look for opportunities to improve with each review and never stop optimizing, even as your score reaches or surpasses good thresholds. With patience and consistency, business credit can always get stronger.
