FICO Score Elements
1. Payment history (35%)
This determines whether you are paying your bills on time and indicates if and when you miss any payment due dates (even by just a few days).
2. Total debts (30%)
Your total debts are the total amount of individual loans you’ve acquired in the past, such as mortgages, auto, credit card balances, bills in collections, and the like. What is being considered here is your credit utilization ratio, or the amount you have available to borrow (like the total amount of your business line of credit) vs. how much you owe.
3. Length of credit history (15%)
A longer credit history shows how experienced you are with using credit, helping lenders assess your level of risk.
FICO uses a simple formula to calculate your average length of credit history. Just divide the ages of your oldest and newest accounts by the total number of accounts you own. What is a good credit score for a business loan?
Generally speaking, the longer credit history you have, the better it will contribute to your overall credit rating. Seven years is the ideal amount of time you need to establish a good credit history.
However, this alone won’t guarantee any huge improve in your credit score. You have to consistently pay-off your bills and balances every month for lenders to assess you as a responsible borrower.
4. Mix of credit types (10%)
Creditors want to see if you are able to pay for a mix of credit types, from credit cards to installment loans to retail accounts. Lenders will use your credit history to see how well you are able to manage different types of business credit.
5. New credit (10%)
If your strategy has been to apply for several loans at once, or you’ve opened multiple credit accounts within a short period of time, you should know this affects your credit score. This is because FICO scores reflect how often you’re getting new credit.
Opening new credit lowers the average length of your total accounts, which in turn, affects your length of credit history. Also, the new credit you’ve used will only increase your “amounts owed” factor, therefore affecting your credit utilization. The higher your credit utilization, the lower your credit score.
