The Small Business Owner's Guide to the FICO Credit Score

7 min read

Executive Summary

If you have limited business credit history, it's especially important to maintain good personal credit health. The FICO credit score in particular is important, since it is used by lenders 90% of the time. Even without business credit, your FICO credit scores can open you up to funding options for your small business.

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As a small business owner, there will come a point in business when you’ll likely need to seek extra funding to grow your company or meet financial obligations. When this time comes, having a good credit score will stand you in good stead with banks and other lenders. Building your business credit score over time can be done in many ways, such as by using a business credit card instead of your personal credit card for business expenses. However, many lenders and financial institutions also look into your personal credit score to make their lending decisions. The FICO score is a type of credit score that lenders commonly refer to.

When do lenders check your personal credit?

Banks and other lenders will look into your personal credit score if your company is relatively new,  has yet to build a business credit history, or doesn’t have sufficient business assets to put up collateral. Your personal credit gives lenders an indication of how likely you are to repay your debt in full, and in a timely manner. Typically, lenders will check your personal credit score when reviewing your loan application to decide whether to approve or reject it. A good personal credit score can also give you access to better loan rates or credit card benefits.

What is a personal guarantee?

A personal guarantee is a legally binding agreement between the lender and the business owner who acts as the guarantor. There are two main types of personal guarantee - limited or unlimited. A limited personal guarantee means the owners are only liable for a portion of the debt owed, while unlimited means owners owe the full amount and any associated fees. In the event a business cannot meet its debt, the guarantor or business owner bears legal responsibility to repay the amount. If you fail to fulfill this responsibility, you may be subject to lawsuits, have debt collectors come after you, and endure a worsening credit score.

In business law, the corporate veil concept protects business owners from being personally liable for company debts and other obligations. This excludes partnerships and sole proprietorships.  However, there are cases where the corporate veil can be lifted. When there isn’t enough financial information from your business, a lender may look at your FICO or other personal credit scores to analyze credit risk and determine if a personal guarantee is required.

What is the FICO score?

There are many different types of credit scores. However, the FICO credit score is the primary credit score used in 90% of creditworthiness evaluations. Created by an independent data analytics company, Fair Isaac Corporation, it is presented within the score range of 300 to 850 (unlike with business credit, consumer credit scores are typically three-digit numbers). Your FICO score takes into consideration the following weighted factors present in your credit file:

  • Payment history (35%)
  • Amounts owed (or available credit) (30%)
  • Length of credit history (15%)
  • Types of credit used (10%)
  • New credit accounts (ie, number of credit inquiries, also known as hard inquiries)(10%)

FICO determines your credit rating based on the following FICO score ranges:

  • <580: Poor
  • 580-669: Fair
  • 670-739: Good
  • 740-799: Very good
  • >800: Exceptional

FICO scores are over 25 years old and to keep up with the times, nowadays, there are many different versions of FICO scores using an updated version of the FICO score model. There are two main categories that FICO scores fall into: base FICO scores and industry-specific FICO scores. Base FICO scores are more general in nature and are used to predict creditworthiness on any type of credit. Meanwhile, industry-specific scores are used to assess creditworthiness when it comes to specific types of credit such as auto loans, credit cards and mortgages. FICO score 8 is the most commonly used by lenders for personal loans and credit cards.

It is important to understand these three parts of your personal credit scoring process — the credit bureaus, credit reports, and your FICO scores.

  • Credit bureaus: The three major credit bureaus namely Equifax, Experian and TransUnion, keep track of your credit data. Your lender provides information to the credit bureaus when you take on new credit, miss payments or make payments. All this information tracked by the credit bureaus is represented within your credit reports.
  • Credit reports: Contain all relevant information about your credit history for lenders to make evaluations. Each credit report held by each bureau will differ slightly since lenders may report to any or all three credit bureaus. You an get a free report annually at
  • FICO scores: Based on information within your credit reports. Lenders can get a credit report and request your FICO scores from any credit bureau or all three of them.

What is a good FICO score?

The higher your FICO score, the lower your credit risk. Different lenders have different perceptions of good FICO scores. Some banks may offer lower interest rates to those with scores under 740 while others may require higher scores. Generally, a FICO score of above 740 demonstrates to lenders that you are a dependable borrower and good paymaster. According to FICO, people with high FICO scores are those who:

  • Make on time payments every month
  • Keep credit card balances low
  • Apply for new credit only when needed
  • Have established a long credit history

How do I get my FICO score?

While it is possible for you to request a free copy of your annual credit report by mail here, the free report does not provide you with your FICO score. Your FICO score is reliant on all the information in your credit report and therefore, it is important to ensure that the information within the credit report is accurate. A one-time request of your FICO credit score will cost you $20.

However, there are also ways you can get your free FICO score. Many credit card issuers give cardholders free access to FICO scores and credit monitoring services including American Express, Bank of America, Citi, Discover and Wells Fargo. Typically, you’ll need to be a primary account holder of a consumer card. If you meet eligibility requirements, you’ll be able to log on to your online account and view your FICO scores.

How do you raise your FICO score?

Understanding how the FICO score is calculated will give you an indication of the action needed to improve it. Paying your bills in a timely manner, using your credit responsibly and only taking on new credit when needed will help you maintain or improve your credit health. Since your payment history and the amount of credit you are currently using carry the largest weights in calculating your FICO score, it is best to be mindful in these areas.

Here are some tips from FICO on managing your FICO scores:

  • Pay bills on time and avoid letting credit go to the collection stage. Paying off a collection amount will not clear it from your credit report.
  • Keep balances low on credit cards and other forms of revolving credit
  • Having a longer credit history is better. Don’t close unused credit card accounts when trying to raise your FICO score.
  • Make loan inquiries in short time durations since FICO scores differentiate between the types of loans you search for based on the period of time in which inquiries occur.
  • Having a good credit mix will work to your advantage if repayments are made on time.

Last word on the FICO credit score

As a small business owner with limited business credit history, it is important to maintain good personal credit health. The FICO credit score in particular is especially important since it is used by lenders 90% of the time. Following your payment schedule and managing your credit well will positively impact your FICO scores. Even without business credit, your FICO credit scores will open you up to funding options for your small business.

About the author

Kiran Sidhu

Written by Kiran Sidhu

Kiran is a freelance writer and content manager at a B2B startup. As a finance graduate, her past stints include the global markets department at an international bank and as a journalist for a business and tech publication.

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