FICO Liquid Credit Score: Understand Your Credit When Applying For Loans

Most people are familiar with their personal credit score. The FICO score is used in more than 90% of all underwriting decisions in the U.S. It works a bit differently for businesses, but it's still relatively simple to contact the three major small business credit reporting agencies. These agencies – Experian®, Equifax®, and Dun & Bradstreet® (not TransUnion®, which is used for consumer credit scores) – should be glad to share your numbers.

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However, the FICO LiquidCredit® Score is different than your other credit scores and especially important for small business owners. It’s important to pay attention to this score. If you're below a certain threshold or wondering how to get a business loan with no credit, continue reading for further insight.

What is the FICO LiquidCredit Score?

The FICO LiquidCredit Small Business Scoring Service℠, a.k.a. FICO liquid score or FICO SBSS, is a global business credit score. It gives banks and other lenders a view of how the owner, as well as the business, perform in both personal and business money management.

The score is a compilation of your personal credit history, your business’ credit history, and the financial standing of your company. These are then figured into a number that falls on a scale of 0 to 300, which is used to assess credit risk.

Like other credit bureaus, your FICO liquid score looks at various factors, such as whether you pay your bills on time. It also considers how much debt you have and the different types of credit that have been extended to both you and your business. The financial history of your business and cash flow management are also considered.

How does the FICO LiquidCredit Score Work?

A good FICO liquid score can qualify small business owners for term loans and business lines of credit no greater than $1 million. As with typical personal and business credit scores, the higher your FICO SBSS score, the better.

In small business lending, entities offering certain business loans must follow FICO SBSS rules set by the Small Business Administration (SBA). Lenders offering SBA 7(a) loans must pre-screen loan applications to identify borrowers whose FICO SBSS score is at least 155 or higher. All other borrowers must receive manual approval on their applications.

Notably, the consumer credit provisions of the Fair Credit Reporting Act (FCRA) do not apply to businesses or FICO liquid scores. As such, lenders can pull your score and use it to assess your application without notifying you. If your loan application is denied, there’s no guarantee you’ll know that a poor FICO liquid score is the reason for the denial.

Why does the FICO LiquidCredit Score Matter?

As explained above, your FICO liquid score is paramount if you’re applying for SBA 7(a) loans. However, a poor business credit history can also prove an issue with bank term loans or alternative loans. Increasingly often, the lenders behind these loans look at your FICO SBSS score and business credit reports to assess whether you’re a credit risk. In fact, more than 7,500 lending entities currently use the FICO liquid score to influence their approval decisions.

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How does the FICO LiquidCredit Score Impact Businesses?

Put simply, the FICO liquid score can stand between your business and your ability to get the funding you need. A FICO liquid score below 155 can make your loan application process significantly more challenging. Conversely, a high FICO SBSS score can increase the likelihood of loan approval.

How is FICO Calculated?

The Fair Isaac Corporation (the company often known as FICO) doesn’t share the exact formulas and algorithms it uses in its scores. However, the following aspects of your small business influence its score:

  • Your personal credit;
  • The personal credit of any business co-owners (up to five owners total with at least 20 percent ownership each);
  • Your business’ credit history;
  • Your number of employees;
  • Your business’ number of years in existence;
  • Your financial statements

How to Improve Your FICO Score

Although the formulas that FICO uses to calculate your liquid score are private, you can still take action to improve your score. There are three key recommendations for doing so:

  • Establish your business credit. To establish your business credit, you can open business banking accounts and obtain business identification numbers. You can also choose lenders who regularly report your payments to the big three business credit agencies.
  • Improve your business credit score. With your business credit established, you can further improve your score by paying all your bills on time, maintaining a good credit utilization ratio, and disputing any errors on your credit report.
  • Keep your personal credit score high. Even though the FICO liquid score is a business statistic, your personal credit score does influence it. Therefore, avoid loading your personal credit card with purchases you won’t be able to pay off each month. Instead, use it to buy things for which you know you’ll have adequate cash, and use less credit than your limit allows for. You should also aim to pay all your monthly bills on time.

How Can I Find My Score?

Unlike other business credit bureaus, FICO doesn’t give your liquid credit score directly. However, before you apply for a business loan, ensure you’ve done everything you can to increase the personal credit of all of the business owners, ensure your business’ Dun & Bradstreet report is clean (if you have one), and ensure you’re not late on any existing business loan payments.

WHAT YOU NEED TO KNOW: The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial processionals for further information.

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