Small Business and Your Credit Score

How long has it been since you have checked your credit score?

For many, it's been a long time -- or they haven't ever checked it.  With so many companies offering to show you a free credit score, it may be confusing to know the importance of it.  If you are a small business owner who is in the start up phase, or one who may need to expand your business soon, it's an important thing to understand.

First, let's define a "credit score."  There are a few different scores created from different companies, but the most well-known one is the FICO score.  You can learn what makes up the score at this My FICO page, but it basically takes information from you credit report, assigns each piece of info a weighted score, and then combines them into one.  No one thing (like a single late payment, for example), will significantly alter your score, but repeated or consistent behaviour can.

Why do you need to know your score?  Your score may be used in place of a full credit report for many transactions you may make in your lifetime.  In addition to securing credit cards for your small business, you will use it in your personal life, as well.  Getting car insurance, renting an apartment, and even some jobs you may be eligible to apply for are all examples of times when your score may be called up for review.  A low score may cost you higher interest rates, or may deny you the opportunity to move forward on important business opportunities.

How do you get your score?  While there are plenty of commercials offering to show you a "free credit report,"  free scores are harder to come buy.  Keep in mind, that unless you are ordering your free annual report directly from the site -- the only government-approved, non-commercial site -- you may not be getting a truly "free" report.  Other sites will promise to show you a report, but may require a trial to a paid membership service (most likely for credit fraud protection or monitoring.)  By accessing the official site, you'll never have to provide payment info.

To get a credit score (which is different than your report), you can pay to have one of the companies provide you with it, or you can use one of the only free sites I know of: Credit Karma*.  I have used Credit Karma personally for over 2 years, and I use it to check my credit score every month for free.  How do they give you access to a score and not charge?  I believe they likely make their money from the ads they show you and the credit card offers that many people sign up for through their site.  I have never paid a penny, however, and I still keep on top of my score every month.  (They also have some wonderful tools for learning about your score, how to improve it, and how your credit use stacks up against other Americans.)

Do you know your credit score?  Why not?

*affiliate link - although I have been using Credit Karma on my own for over 2 years and would recommend it to anyone!!

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