What’s in a Credit Score?

Credit Score

By: Rachael Dubin, Senior VP of Lending at Community Capital New York

When applying for a small business loan, the first thing a lender will assess is the credit worthiness of the borrower. How do they do that? By looking at your credit score. The FICO credit score, which ranges from 300 to 850, is based on three primary pieces of information:

1) Your historic ability to pay debts on time.  Credit scores are positively influenced by your track record of making payments on time month to month. The frequency with which payments are either 30, 60 or 90 days overdue will lead to a lower score.

2) The amount of debt you owe to creditors.  The closer you are to a “zero-credit” balance, the better it will impact your credit score. Conversely, carrying high amounts of debt to multiple creditors and carrying amounts near the credit maximums result in a lower score. Even applying for loans and credit cards hurt your score as it signals to lenders that you are seeking additional sources of credit.

3) The length of your credit history.  The longer your credit history, the more impact it will have on your credit score. Even if there are credit cards that you do not use, there is value to having the account remain open.

Beyond being able to get a loan for your business, having a strong credit score can result in a lower interest rate on your mortgage, lower insurance premiums, whether for your vehicle or home, and increasingly, rightly or wrongly, employers can you user credit score as a way of measuring your sense of responsibility.

If you do not know your credit score, you are not alone. According to a recent TransUnion study, more than 50% of Americans have never checked their credit score or have not done so in the last year. Visit www.mycreditscore.com to view your credit report. Have questions? Feel free to call Rachael Dubin at (914) 747-8020, ext. 118 or email rdubin@communitycapitalny.org.  Please also visit our website at www.communitycapitalny.org.