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Business Insights

What contributes to your business and personal credit score?

Synora Gore
6 minutes to read

Understanding what contributes to your credit score can help you identify areas in which to improve so you can increase your score. Generally, higher credit scores are more likely to be approved for loans than lower credit scores.

What is a credit score?

A credit score predicts how likely you are to pay back a loan over time based on a variety of factors related to your past and ongoing use of financing.

What are the five major contributors to your personal and business credit scores? 

1. Credit Utilization

How much credit you and your business currently use 

Lenders want to be sure you use available credit with moderation. As a general guideline, keep your credit utilization below 30% for both your personal and business credit cards to help ensure lenders consider you a reliable borrower. For example, if you had a credit card limit of $10,000, you would want to keep your credit card balance below $3,000. 

2. Payment History

How reliable have you and your business been at repaying debts

Your company’s ability to pay off debts on time is crucial for securing a loan. It’s essential to make sure all accounts, sometimes referred to as tradelines, are paid on time. Your account payment status is often reported to major credit bureaus, which determine your credit score. 

If you are managing cash closely, make sure you check your invoices for the payment terms/due dates, which may provide you with different amounts of time to pay the bill. For example: 

    • – “Net 30” means the balance of is due within 30 days 
    • – “Net 60” means the balance of is due within 60 days 
    • – “Net 90” means the balance of is due within 90 days 

3. Outstanding Debt

How much money you or your business owe other creditors

When applying for a loan, lenders assess the amount of outstanding debt in your financial record. One aspect of their evaluation is your debt-to-income ratio, which compares the amount of debt you have to the amount of debt you currently owe, so it is important to maintain a clean financial history that can increase your chances of securing a loan.

Keep in mind that any tax liens, judgments, or bankruptcies can negatively impact your company’s ability to secure working capital for your business. 

4. Length of Credit History

How long have you or your business had access to credit

Lenders also consider the length of time that you have had access to credit. The longer you are able to demonstrate moderate credit utilization with strong repayment history and low outstanding debt, the more creditworthy you become to lenders. 

It is essential to understand this factor and take steps to establish and maintain a strong credit history. Doing so can improve your chances of being approved for loans and other forms of credit in the future. Remember that improving and maintaining business credit is a process that takes time and effort, but the rewards of a strong credit score can be significant.  

5. Company Type

What industry is your business in 

Lenders use the North American Classification System (NAICS) to understand the risk that your industry may carry. You can locate your NAICS codes on your tax returns.  

Historically, lenders have listed certain industries as being high risk, whether for a high risk of damages or low profit margins. If you are in a risky industry, lenders may have more stringent requirements for your credit. 

Want to learn more about how to build your business credit? 

Watch our recent webinar, Building and Maintaining Business Credit. 

To qualify for an SBA 7(a) small business loan, your business must be:

  1. U.S.-based and operated
  2. Owner supported / owner funded
  3. Eligible per the SBA’s requirements

Your loan amount will determined by the business’ average annual revenue, FICO score, and years in business