When building business credit it’s important to understand your score across the various reporting agencies. One of the most important metrics is the FICO SBSS credit score, sometimes known as the small business credit scoring service.
Having a good rating means you’ll be much more likely to be accepted when making funding applications and suppliers and vendors will see you as a trustworthy partner. Join us to find out exactly what a FICO credit score is, how it works, and how you can improve yours.
What It the FICO SBSS Score
The Fair Isaac Corporation (now FICO) is a credit reporting agency founded in 1956. Its SBSS score combines data from a number of different credit bureaus to give businesses a rating between 0 and 300. Much like its personal equivalent, the higher your score, the more likely you are to be approved for credit.
What Is a Good FICO SBSS Score?
Generally, anything from around the low to mid-200s is considered a good score, and anything above 250 is excellent. However, many small businesses tend to use the minimum benchmark set by the Small Business Administration (SBA) as an indicator of creditworthiness.
SBA loans are partially backed by the Federal Government and for any borrowing amount below $350,000 the applicant must have a business FICO credit score of at least 140. This is a useful target for newer businesses, especially those that haven’t had the time to build up extensive credit histories.
Plus, a score of 140 is actually the very highest a brand new business can achieve and is the mark many startups shoot for. You’ll find that many traditional lenders, like banks and credit unions, will set minimum requirements at around 160-180 to prevent new businesses from applying.
How FICO SBSS Works
- Score – FICO operates both personal and business credit scores, which are tracked separately. Your personal score will range between 350 – 850 while business credit is between 0 – 300. For both, the higher your score, the better your credit
- Borrowing limit – Your FICO credit score can only be used on loan applications up to $1 million. If you’re borrowing more than this the lender will look at other business credit bureaus
- Building credit – For startups or those with limited histories, it can take months, and even years, to build up a good credit score. Conversely, your score can fall dramatically in just a few days if you miss a payment or have another derogatory mark on your record
- Fair Credit Reporting Act – Unlike personal credit scores, the business equivalent isn’t covered by Fair Credit Reporting Act protections. This means that lenders don’t have to tell you when your score was used to check an application and you can be denied financing for having a poor rating
- Popularity – The SBSS credit score is one of the most popular metrics used by lenders, suppliers, and financial institutions. It’s a go-to measure of business reputation which is why it’s vital to maintain a good score
How Is the FICO SBSS Score Calculated?
- Combination of business and personal credit – Unlike some other business credit bureaus, FICO will take into account your personal financial circumstances such as mortgages, bankruptcies, and personal credit cards. Any person with more than 20% ownership in the business will be included in the personal portion of the calculation
- General business data – This includes information like the age of your business, publicly available company accounts, and how many employees you have. More well-established organizations will get higher scores
- Liens and judgments – If you have any negative marks against your business, such as tax liens or court judgments, these will drastically decrease your score
- Payment history – Being able to pay your debts on time makes up one of the most important metrics when calculating your score. Even just a few missed payments can have a significant impact
- Other business credit bureaus – FICO draws data from three other major reporting agencies; Equifax, Experian, and Dun & Bradstreet. This makes the SBSS report one of the most comprehensive you’ll find
- Lender discretion – Banks, lenders, and vendors can actually choose to use the SBSS model in different ways, applying more weight to certain categories. This means you might be scored slightly differently across different lenders and if you’re rejected by one it’s always worth applying to another
How to Improve Your FICO SBSS Score
- Pay debts on time – This is absolutely crucial to getting a good score. Missed payments can be very damaging and remember, FICO covers personal as well as business debts so don’t neglect your private finances
- Low credit utilization – Always try to stick to below 30% of your credit limit. Any higher than this and your score will start to take a hit. In fact, many lenders look for even lower limits closer to 10% or 20%
- Diverse portfolio – Have a combination of different credit types such as small loans and credit cards to get a diverse mix of credit
- Monitor your report – Keep an eye on your FICO credit score and get in touch with the agency if you find any discrepancies. You can request a copy of your report directly via the website
- Register for a DUNS number – This is a unique identifier you receive once you register your business at Dun & Bradstreet. FICO draws data from this organization and being registered will go a long way to help to build credit
Maintaining a healthy FICO credit score is definitely a long-term commitment but one that shouldn’t be too hard once you know-how. Remember to never borrow more than you can afford and try to stick to the lower end of your credit utilization limit.
A good business credit score is more than just a tool to help you secure funding, it’s a symbol of your reputation and can be incredibly useful when building relationships with new clients and suppliers too. Make sure you keep track of your FICO business credit score and try to check in at least once per month. This way, you can stop any issues before they become serious.