|
|
Home > Financing > Credit Reports
A Credit Report is one of the documents that will be examined by the bank as part of the small business lending process. Especially in the case of start-up companies where the company has no financial "history" that the bank can examine.
What is in a Credit Score?
Credit bureaus come up with a credit score using a formula devised by the research firm, Fair, Isaac & Company. The score, called FICO, can be broken down into five general categories. These, and their relative weighting, are:
- 10% Propensity to Look for New Credit: Someone who frequently applies for new credit is considered a risk.
- 10% Credit Mix: How much the individual maintains installment and revolving debt.
- 15% Length of Credit History: At least 5 years in preferable.
- 30% Debt Ratio: The amount of debt outstanding versus the amount available.
- 35% Bill-Payment History: Weighted to emphasize the past 12 months.
Source: Fair, Isaac & Company
Here Are Some Steps You Can Take to Improve Your Credit Score:
- Pay Your Bills on Time: Your bill-payment history is the No. 1 factor affecting your credit score.
- Keep Accounts Open: Instinct says you should close open accounts to improve your credit, but this could actually hurt you. Reporting agencies say a debt-to-available-credit ratio of less than 50% is preferable, and closing accounts will increase that percentage.
- Get a Mix Of Credit: Reporting agencies like to see a variety of revolving and installment debt, but most important is establishing some sort fo credit history. A person without credit cards is considered to be a greater risk than someone who manages several responsibly.
- Fix the Mistakes: Check your credit report at least once every two years and make sure all the accounts listed are actually yours and the report accurately reflects your payment history.
- Avoid Credit-Repair Companies: According to the Federal Trade Commission, most use fraudulent techniques that can land you in hot water.
Source: Wall Street Journal
|
