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Make Your 2010 Business Resolution to Become Credit Worthy!

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Make Your 2010 Business Resolution to Become Credit Worthy!

Published: March 24, 2010 Updated: March 2, 2012

Many entrepreneurs approach us for assistance in seeking funding. They show us their business plan, describe the growth they anticipate by updating their commercial kitchen, purchasing a store front or plead their case on how they need funding to make payroll. Whether that funding is for equipment purchases, real estate or working capital does play a factor in securing financing, however, what matters most is a four letter acronym…“FICO”.

What is “FICO”? Your FICO* (created by the Fair Isaac Corporation) is a statistical analysis that represents your credit worthiness. The FICO score ranges from 300 – 900. There are a few lending programs available that will consider a slightly lower credit score such as the SBA Community Express Program* but to be truly credit worthy you’ll need to have a score of 720 or above. If you already have an established business you have a second opportunity to qualify for financing by utilizing your business' credit history. However, until your business is of significant size, revenue, and longevity your personal credit history will still be considered.

If you aren’t one of the few currently holding a score of 720 or above, there are a few steps you can take to improve your score:

- Pay debts on time

o If you are behind on any debts, get the payments caught up and pay on time going forward. This accounts for about one-third of your score.

- Watch your total indebtedness

o Another one-third of your credit score is made up of your total debt owed, the number of credit lines you have with a balance, and the type of credit accounts you have i.e., mortgage or revolving.

- Maintain a variety of account types.

o Balance higher risk account types with more secure, collateral based.

- Limit opening new credit lines

o The more credit lines you have increases the likelihood a creditor will question your ability to repay a new loan.

Finally, never underestimate the importance of knowing your credit score and making sure all your credit reports are accurate. Be sure to visit www.annualcreditreport.com* once a year to obtain a free credit file disclosure from each of each of the nationwide consumer credit reporting companies: Equifax, Experian and TransUnion. And make sure to check out and enjoy the annualcreditreport.com video* from the FTC underscoring the benefit of this site. Happy New Year! 

You can also find Tonya on twitter at @TonyaWilson.

Message Edited by ChristineL on 12-23-2009 12:04 PM

About the Author:

Tonya Wilson
As a member of the Ohio SBDC at Columbus State, we provide entrepreneurial development assistance and business consulting to start-up, emerging, and existing business owners. In addition to one-on-on advising, we create, coordinate and promote programs and events to inspire, educate and engage individuals who wish to start or grow a small business.

Comments:

While there are some opportunities to start a cash business, most of the people who are startin a new business will need to have credit, and thus the credit score should be good. The exceptions would be if they have a property with plenty of equity, they may be able to borrow against SOME of that equity, pay down their debt, let that 'season', then apply for a line of credit just for the business. Once they have done that, there is now a good chance their credit score will have gone up. But, having some assets, and a good business plan is very important, and making a budget that you actually stick to goes without saying. Lots of us out there are in love with the idea of running a business, but don't have the discipline to actually do it. I think if you can stay on task in the beginning, it is likely you will have the right stuff to keep on task and make a sucessful businessLarry @youhuge.com
FICO is not something you should be worshipping. Contrary to the widespread idiocy of our culture and times, you don't need credit to run a successful business. I own a photography studio in Kansas City that is completely debt free and is operated on a cash-only basis. Haven't checked my FICO in years. Credit crisis? What credit crisis?Message Edited by NicoleD on 01-19-2010 09:58 AM

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