By Sean Mory
So before I put this blog together I decided what else is out there about “Credit Scores” and what I found was a scary amount of inaccuracies with some very accurate articles thrown in randomly with all the disarray.
What I didn’t find was anybody who properly articulated where this score is derived from whether it be Fico Score, Vantage Score, or any other scoring system out there you can find. So let’s talk about exactly where they get that magic number from when you are seeking a small business loan or working capital.
Within your credit profile there are far too many areas for me to name off every single one of them that will play a role but here are a few of the basics that play a strong role.
- Firstly they are going to look at the “Age of File” and they determine this by the oldest credit file on your account. Whether it be a mortgage, a credit card, or an installment loan the oldest file on record will determine your “Age of File”.
- Secondly you have the “Late Payments and Derogatory” section. This will consist of any delinquent accounts or late payments in the last 7-10 years as well as any derogatory accounts (which will include anything from medical collections all the way to tax liens) and this is a very important section because this will help a lender determine your credit risk based on your ability to manage the accounts you have currently
- Thirdly you have your utilization of revolving credit (which is all of your Trade lines that are reported as “revolving”) The majority of the time this will be personal credit cards and on the rare occasion you will see Home Equity Lines of Credit showing up here. Utilization is simply your balances on your revolving accounts in relation to your credit limits on those revolving accounts
- Fourthly you have your “Recent Inquiries,” this is going to be any time you’ve applied for credit which could be for a credit card, a cell phone, or mortgage among many other things. Once you have too many inquiries on your credit on anyone bureau you will start to see a drop in your “Credit Score”. This is a temporary drop and once the inquiries have time to age out they will matter less and less.
So that’s a crash course on a few of the multiple areas of your credit profile that they will evaluate to determine your overall “Credit Score”, and remember is one of the most valuable personal asset you have so handle with care. Here is the best book on credit we at LenCred have found The Smart Consumer’s Guide to Good Credit: How to Earn Good Credit in a Bad Economy by John Ulzheimer.
Sean Mory is a Small Business Financial Advisor at LenCred, he is FICO Pro certified and specializes in creating solutions for small business owners with credit and lending solutions. Sean has been with LenCred for over 3 years and you connect with Sean on LinkedIn here.