The majority of small business owners realize the necessity of a good credit score. If your company encounters an unexpected expense, you may need a small business loan and in order to get one in today’s economy, you need a good credit score. The easiest way to build good business credit is to practice smart decision making from the beginning regardless of if you are struggling or thriving.

 There are those who subscribe to the school of thought that when building business credit, one does not need to be concerned about the health of ones personal credit. While it is true that when you are building your business credit it is separate from your personal credit, it is always to your advantage to have good credit in both aspects. The more on target you are with your personal credit the more effective you can be in managing and building your business’ credit. There are some variances between personal and business credit. The best advice if both your personal credit and business credit are less than perfect is to repair both simultaneously.

Make sure as you are building your business credit that you still maintain the proper licensing and state regulations. Some things that will help you is a business phone listed in the phone directory under the name of your business. Buying products and services from companies that report your payment history to Dunn & Bradstreet, Experian, Equifax or other credit reporting agencies also helps build your credit.

Having a good credit score is not reserved for those with the million dollar bankrolls.  A business of any size can have good credit if the proper steps are followed. Be aware of loan fraud. A legitimate underwriter does not ask an upfront fee to connect you to a business lender. There may be other upfront fees but not one specifically for that reason. Keep pushing and paying down debt on time and your credit scores will be up in no time.

Small business owner’s credit scores have a lot to do with the success and failure of the business within the first six months. FICO’s many laws and formulas are important for business owners to be aware of how customer’s credit scores are calculated. This information can help owners make good decisions in regards to how they make business decisions and create or maintain good credit. This guide explains how FICO reviews a business and calculates a credit score.

The first metric is payment history. This is comprised of a history of how well the company pays debts and accounts for about 35% of a company’s credit score. Payment history not only analyzes how often new debts occur, but also the rate in which they are paid back and if they are paid on time. Having some debts on the credit report is ok as long as the company is making payments on time and is only incurring debts you can pay on time.

The next component of a company’s FICO score is the amount owed. This metric is very important because companies that have large amounts of debt are less likely to be able to pay them back on time. This metric accounts for approximately 30% of your credit score, and excessive debts can lower your score tremendously.

Thirdly FICO considers the length of time it takes the company to pay back debts. This accounts for 15% of the company’s credit score. The longer a debt remains unpaid the lower your score will be. This factor can also impact your score positively because the longer you have a history of debt occurrences with an appropriate pay off time frame your score will improve.

Large amounts of new credit that is excessive in nature or unable to be explained it can lower your FICO score. New credit helps FICO determine if you are creating debt that you cannot pay off; this is about 10% of your score. You need to maintain a reasonable equity to debt ratio as well to maintain or create a good credit score.

 The final indicator that FICO looks at to comprise your company’s credit score is the type of credit or debts. An example of good types of credit is: a line of credit with the bank, one with a national office supplier, and a rarely used credit card used as a safety net for unexpected emergencies. In converse if you have a line of credit used as overdraft protection that has a large outstanding balance, it shows that you are not being responsible with this account. This factor accounts for about 10% of the companies credit score.

In conclusion, regardless of where your company is now, you and your small business need to be aware of how a credit score is calculated, as it can determine if you can get loans, lines of credit and much more.