When you’re applying for a small business loan, your business credit score is an important factor in the lender’s decision. There are a few different kinds of business credit scores that lenders might consider, but one of the most important that many small business owners don’t know about is the FICO Liquid Credit Score.
Starting with the Basics
What is the FICO Liquid Credit Score—and why does it matter to your business? Also known as the FICO Small Business Scoring Service or FICO SBSS score, the Liquid Credit Score is used by lenders to make lending decisions faster and more accurately while lowering their risk. In fact, if you’re applying for a Small Business Administration 7(a) loan, the FICO Liquid Credit Score is one of the criteria the lender will use in pre-screening your loan application.
Lenders rely on the FICO Liquid Credit Score when making decisions about term loans and lines of credit for up to $1 million. Like all credit scores, the FICO Liquid Credit Score ranks you based on how likely you are to make loan payments on time. But unlike with the FICO scores you might know more about, the Liquid Credit Score ranges from 0 to 300. For SBA loans, the minimum score you can have and still get through the pre-screening process is 140—and for most other lenders, the minimum score is 160.
So how does FICO come up with this score? The FICO Liquid Credit Score combines your business and personal credit history, your business’s financial information, and basic business data like its size, age and number of employees. It incorporates information from all of the major credit bureaus that report business credit information, including Dun & Bradstreet (D&B), Experian, and Equifax. Since each of these credit bureaus emphasizes slightly different information, gathering data from all of them helps FICO come up with a balanced overall picture of your business’s financial health and reliability.
FICO Liquid Credit & Your Small Business
Good news for fledgling entrepreneurs: because it also incorporates personal credit information, the FICO Liquid Credit Score can benefit small business owners who lack a strong business credit history but have a good personal credit score. Bad news for all business owners: if you’re rejected for a loan because of a poor FICO Liquid Credit Score, the lender isn’t required to disclose that fact—so you might never be sure why you were turned down.
How can you make sure that your FICO Liquid Credit Score is strong? Your best defense is to monitor your business credit reports from each of the major business credit reporting agencies. Since the FICO Liquid Credit Score draws from these agencies’ data, it’s important to make sure their data is accurate—and correct any errors if it’s not.
When you’ve got a good business credit score, keep it up by following some of these rules:
- Review your credit reports annually.
- Always pay vendors, suppliers, and others on time.
- Build your business credit history by using business credit cards (instead of checks or debit cards) to make purchases—and then make those credit card payments on time.
- Make sure your vendors, suppliers, and business credit card issuers report your payments to the business credit reporting agencies. Not all do this automatically, so you might need to ask!
- Avoid maxing out your business credit cards or lines of credit. Try to keep your utilization of any one credit source at 25 – 30% of your credit limit for that source.
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from Fundera Ledger https://www.fundera.com/blog/2016/04/20/the-fico-liquid-credit-score/