The 3 most important attributes on your credit report
Achieving and then maintaining a high credit score is very elusive to many Americans. In fact, a large majority of Americans have less than 750 FICO score and nearly half have a score less than 700. So, why is it so hard to be in the upper echelon of credit scores? Being a serial entrepreneur, I can tell you one reason! If you run your own business you are no-doubt using your own credit to finance receivables, purchase supplies, or using credit to make your business work. Unfortunately, this means you usually will have a higher “utilization” rate of your credit. The credit bureaus give individuals high marks for keeping their outstanding balance very low compared to their credit limit. But, running a business usually means financing cash flows – using your credit to pay for business needs until your customer pays their invoice. This credit attribute – credit limit utilization – is extremely important and has a big impact on your credit score, which then affect your cost of financing. So, for all you entrepreneurs out there, and there are a lot, understand this dynamic.
Second, and as important, is your timely payment of debt. Miss a payment and you may be forgiven, so long as you are communicating with the lender. When a lender decides to report your untimely payment is really up to them. The credit bureau doesn’t know of your late payment until the lender reports it. So, if you need to manage your payments, it’s crucial that you communicate with your lender and work through this issue. Going silent will most likely result in a lender reporting you sooner than if you had communicated a payment plan with them.
Third, is your length of credit history. It’s important to have credit extended to you and to have a history of on-time payments on that credit – the longer the better. So, it’s best to maintain a long history of payments on your credit, preferably keeping your utilization low as you pay-over-time.
The elusive high FICO score a little bit like playing Whac-a-Mole! With all the variables that go in to creating the FICO score, it’s important to know what buttons to push to improve your score.
~ David Weyher