Petrogram - Fall 2010 - (Page 17)
Your FICO Score
Len Baccaro, American Equipment Finance
Don’t Make It a Four-Letter Word
redit scores are a hot topic and can make or break your ability to borrow and grow your business. I’ll try to keep it simple.
What Is FICO? FICO stands for Fair Isaac Company, an industry leader in decision management. It uses predictive analytics to help businesses make decisions and manage risk. FICO has become the worldwide standard measure of credit risk. Scores come from the three major reporting agencies, but all have “branded” their own. These credit reporting agencies purchase the information from Fair Isaac Corporation. The scores rank-order people by how likely they are to pay their credit obligations. You would be amazed at what is being tracked – FICO can drill down to your daily behavior patterns and let a lender know that you might be getting into trouble. But how does all of this relate to me as a retailer and small business owner? It’s simple; your ability to attain credit, manage payments and grow your business are all based on credit. The better
your score, the more capital you can attract. It is critical, however, that you understand what makes it better and what makes it a fourletter word.
Good vs. Bad A good score is over 700, and a very good score is over 750 (out of 850). The difficulty with labeling scores as good, average, etc., is that in good economic times, the word “good” may have meant 675, where in more difficult lending environments, a lender’s opinion changes and a 675 is now a “poor” score. Let’s Break It Down Let’s take look at what makes up your score. Thirty-five percent of your score is based on your payment history. The model has no idea if you make $50,000 or $500,000 a year in income and the model does not account for excuses! Th irty percent of your score is based on how much you owe on all of your
The Top-Four Credit Report Faux Pas 1. Obligations are not paid on time: Pay your bills when they arrive. 2. Too much credit card debt: Pay down some of your credit card debt at least 30–60 days before applying for a loan. 3. Be careful with home equity loans: Twenty years ago there were very few equity loans, but they now count against your revolving balances, just as credit cards do. 4. Don’t have your credit run by multiple lenders: Talk to a few lenders and decide who you want to do business with – then apply.
accounts and how much credit is available. The more you owe (when compared to your limits), the lower your score. The model does not care that you don’t believe in multiple credit cards… it just knows that you are maxed out on what you have available. Only about 15 percent of your score is based on how long you have had a credit profile, and another 10 percent accounts for new credit that you apply for. The final 10 percent is a combination of the credit mix that you have. FICO is here to stay. I suggest that you do everything in your power to make it a “nice” four-letter word! Educate yourself and execute a plan to improve your score today. ❍ Len Baccaro is V P of American Equipment Finance in Warren, NJ. They are active members of PEI, FPMA, NASM and many other industry associations – and they exhibit at a variety of trade shows throughout the year. You may contact Len at firstname.lastname@example.org, or call him at 908-542-9330, ext 202.
Table of Contents for the Digital Edition of Petrogram - Fall 2010
Petrogram - Fall 2010
Welcome, New Board Members
FPMA Rolls Out Newly Branded Sunshine Food and Fuel Expo at 2010 Convention!
Your FICO Score
Protect Your Business
Out and About
Index of Advertisers/Advertiser.com
Petrogram - Fall 2010