Your Personal Credit Score: What It Is, Why It’s Important

Ready to secure funding to spark growth for your small business? An infusion of low-cost funds can be key to the future success of your business.

Your best bet is to apply for a loan with low rates, low monthly payments and long terms like an SBA loan, known as the “gold standard” in small business funding.

But not every small business qualifies for an SBA loan. One important factor that determines eligibility is a healthy personal credit score.

Read on! We’ve outlined what you need to know about your personal credit score, how lenders use it to evaluate the credit worthiness of your business and what you can do to raise your FICO® score.


Why is Your Personal Credit Score Important?

Your personal credit score is a number that represents your creditworthiness and tells lenders the potential risk of lending money. In other words, how likely are you to pay back the money you’ve borrowed.

Your FICO score is usually the first detail lenders review to determine creditworthiness. Important to note: A credit inquiry can lower your score. Make sure the lender you’re working with initially conducts a “soft pull” of credit that won’t affect your score. SmartBiz Loans™ does an initial soft pull although a hard pull happens later in the process when matched with a lender likely to fund.  The SmartBiz® Small Business Blog has a comprehensive post on just this topic: Credit Scores: Soft Inquiries vs. Hard Inquiries.

What is a Personal Credit Score?

A FICO personal credit score is a personal credit scoring system created by the Fair Isaac Corporation. It’s presented as a 3-digit number derived from detailed information about your credit history. Your personal score can affect things like car loans and mortgages but here we’re going to explore how this number affects your ability to qualify for a business loan.

FICO Scoring

FICO scores range from 300 to 850.  The higher the number, the better. In general, anything over 740 is considered excellent. If your score falls below 650, you’ll likely pay very high rates for a loan, if you qualify for one at all. To prequalify for an SBA loan facilitated through SmartBiz, your personal credit score must be above 650. But don’t despair! There are ways you can raise this score that we’ll explore in this post.

How is Your FICO Score Calculated? 

There are several categories that determine a FICO score and we’ll break them down to give you a good idea of your FICO number. In general, payment history is 35% of the score, accounts owed is 30%, length of credit history is 15%, new credit is 10% and credit mix is 10%. 

  • Payment History

Are you on top of your bills? If not, you know that a late payment notice is on its way. Paying creditors late frequently will cause your number to plummet. Your FICO report indicates if creditor payments were 30, 60, 90, 120 or more days late.

  • Accounts Owed

FICO considers the ratio of money you owe compared to the total amount of credit available to you. If you owe $20,000 on a credit card and it’s maxed out, your score will lower. On the other hand, if you owe $40,000 on a card but aren’t close to the account limit, you’re in better shape.

  • Length of Credit History

FICO scores take into account how long your oldest account has been open, the age of your newest account and the overall average. You can have a good FICO score even with a short credit history.

  • New Credit

This is pretty easy to understand and simple to control. If you know you’re in the market for a loan, don’t open a bunch of new accounts or your score can lower.

  • Credit Mix

A variety of accounts come into play when your FICO score is calculated. For high scores in this area, you need a good mix like credit cards, car loans, mortgages, etc.

Factors to Improve Your Score

Here’s the good news. If your score isn’t high enough to qualify for a low-cost loan, you CAN raise that number. Take these steps ASAP.

  • Pay your debts on time and as agreed. Debts can include credit cards, car payments, your mortgage, other business loans, etc.
  • Continue to use your credit cards but pay them off each month.
  • Don’t get anywhere near your credit limits.
  • Open new accounts as a last resort.
  • Keep older credit card accounts open. Time Magazine describes why you need to take this step. “Like fine wine, age is your friend when it comes to your credit scores. Older accounts can help boost your scores, as most scoring models consider credit age, or more specifically, the age of your oldest account and the average age of all your accounts.”
  • Stay on top of your credit report by checking your scores and disputing inaccurate information.  (Give this step some time, a resolved problem will fall off of your record eventually)

Don’t Fall for Credit Repair Promises

Don’t fall for companies that offer “credit repair”. These ineffective organizations not only charge big fees but can also set you up for identity theft.  Anything a legal credit counseling service can do for you, you can do yourself by following the steps above.

Where to Find Your Scores

SmartBiz works with a few companies that offer free credit reports. Visit, Credit Karma or NerdWallet.


Not sure if you qualify for an SBA loan? Try the new SmartBiz Advisor online, educational tool to learn about how you can get your business SBA or bank loan ready before you apply – no cost involved.  You can assess key criteria banks consider and where your business stands on each. Learn more about SmartBiz Advisor here.

* SmartBiz Advisor is an educational tool to help you learn about how lenders may view your business. As such, you should not rely on this as the primary source of your business or personal financial decisions SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law.