How Is Your Business Credit Score Calculated

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When looking for a loan lenders might ask for your credit score, and the puzzled look on your face is not a sight they would want to see. Your credit score is an important pillar that your business relies on because at some point you will be looking for loans thus you should know what a credit score is and how it is calculated.

Having a credit score makes it easier to get loans and based on your score the amount of interest you pay is also determined. In this blog, we will be giving you an insight into your credit score and how it is calculated for your business.

What is A Credit Score

Your credit score is a 3-digit number ranging from 300 to 850 and is calculated based on your credit history. It aids the lenders in deciding whether to lend you a loan and ensuring that you can repay it or not. It does not include factors like your age, employment history, race, or information about your utilities.

If you are looking to calculate online business credit reports and find out your credit score then look no further. Our credit report-generating services use the right measures to calculate accurate credit reports for your business. This helps you to find your credit score and move forward with your loan.

How Is Your Credit/FICO Score Calculated

Your credit score is also known as your FICO score and is calculated based on 5 major factors that include:

  1. Payments history (35%)
  2. Amounts owed (30%)
  3. Length of credit history (15%)
  4. Credit mix (10%)
  5. New credit (10%)

01: Payment History

This is the most important factor when calculating your FICO score. What it shows is basically if you have been paying out your creditors in the past. Not only that but timely payments are also looked for and appreciated. It includes all your past bankruptcies and negligences and the higher number of those in your past means a lower number of your credit score.

Lenders look at your past payment history to ensure that you have a clean record of repaying your creditors. This gives them enough reliance on you and your business to give out a loan. If for instance, you have not paid a creditor or went beyond the repayment date then the current lender would be reluctant to lend you a loan. And they would judge your ability to repay it.

02: Amounts Owed

The next biggest contributor to your credit score is the credit owed to credit used ratio. This means that the amount your business owes compared to the amount you spend. Those businesses that spend up to the limit of the amount they owe are considered to be potential risks and the chances of them getting loans are on the lower side. 

Having credit accounts and borrowing does not put you at risk it is the way you spend that ruins your credit score and makes your business unreliable. Creditors look for businesses that know how to spend responsibly so that they know the business will not default in the future. Having many creditors at one time increases the amount you owe which also affects your FICO score.

03: Length of Credit History

The length of your credit history refers to how long your credit accounts have been in action. Generally having a longer credit history is considered to be a positive on the business side. However, it is not necessary for a good credit score. To calculate this they take into account the age of your oldest account, the age of your most recent account, and the average age of all your accounts.

Creditors tend to see whether you pay off your loans on time and having a longer period gives them more data to make their decision on. As said earlier creditors prefer accounts with longer periods and it benefits the business owners as well. For instance, a business that has had one late payment in the past 10 years is much more credible than a business that has a late payment in the past two years.

04: Credit Mix

Credit mix shows the amount of credit lines that you have opened for your business. Revolving credits such as credit cards and retail accounts or installment credits such as mortgages and installment loans are all part of your credit mix. Having one of each account is not necessary but lenders prefer looking at different types of credit lines opened.

Creditors look for how you manage all these types of accounts and this adds up to your credit score. If you are looking for smart business reports for your accounts then our business report service is just for you. We provide the most accurate results to you so your business can act accordingly.

05: New Credit 

New credits as the name suggests include the number of new credit lines your business has opted for. Opening many credit lines in a short period shows the creditors that you are facing a financial burden. This in turn affects your credit score negatively. Hence you should decide whether the new credit line is worth affecting your credit score or not.

Banks or creditors look for businesses that can make the right decision and evaluate whether the credit line is beneficial for them or not hence checking the new credit number. Having many newer accounts also has an impact on your credit history thus affecting your credit score.

In Conclusion

Your credit score is in the hands of these five factors. If you want your business to grow and keep getting loans you must maintain a good credit score for your lenders to look at and be satisfied with. If you are a newer business then there is not much to worry about. Look at this as an opportunity to build a good credit score for the future and keep all these factors in mind to provide a great credit score to your future lenders.

David Ryan
David Ryan
David Ryan is an expert with 8 years of experience at TechHubSolution.com, specializing in SEO strategies and digital marketing. He has a proven track record of enhancing online visibility and driving organic traffic.

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