By now, you’ve probably heard about the new FICO scoring system, called FICO Score 9 which changes how lenders look at your score and how they make lending decisions.
Brian Manson, Credit Manager at Balboa Capital notes that “FICO scores can affect small business owners’ ability to secure business loans, lines of credit and equipment leasing programs.” For this critical reason, small business owners must be aware of how the new FICO scoring system impacts their bottom line.
Manson asserts, “Small business owners don’t have the luxury of a large corporation backing them financially, so they are the ones financing their operations.”
“Banks and financing companies will examine a business owner’s personal credit score and credit history when evaluating their his/her loan application,” Manson continues. “This is done to determine the business owner’s level of credit risk. A good FICO score presents business owners with a better chance at getting their loan or line of credit approved. Unfortunately, outstanding medical bills have hurt the credit scores of many small business owners nationwide.”
FICO’s updated scoring system now places less emphasis on unpaid medical bills, beginning this fall, which Manson shares in his own words below, the eight ways the new scoring benefits small business owners:
- Entrepreneurs and business owners who have outstanding medical debt will not have their credit scores penalized like they have been in years’ past.
- Debt collections can last on a business owner’s credit report for up to seven years, but FICO will not include credit-score penalties if a medical bill has been paid or settled with collection agencies.
- FICO estimates the average credit score of people with outstanding medical bills will improve 25 points, which could put business owners at or above the threshold required by their lender.
- Business owners will also be able to secure loans and financing with lower interest rates because their scores will improve.
- Business owners with medical debt will no longer be seen as a credit risk.
- Debt collections can last on a business owner’s credit report for up to seven years.
- FICO’s new scoring system will prepare a business owner for success when it comes time to apply for a loan, line of credit, or equipment lease.
- Lenders will loan more money and business owners will secure more funding, and this will help the economy grow because money will be invested in small businesses.
