Small Business Basics: Understanding Your Credit

Business and Personal credit repair

Credit represents your ability to borrow money with the promise to pay it back. Understanding how your credit score is calculated can help you repair and improve your personal and business credit over time. Learn the five categories that matter and their weight on determining your credit score.

Payment history – 35%

Payment history is the most important factor in improving your credit, so pay on time all the time. Late payments, bankruptcies, and other negative items will decrease your credit score. One late payment can drop your score by up to 100 points.

How much you owe and how much credit you use – 30%

The credit-to-debt ratio is the amount of debt you have compared to the amount of credit that is available to you. Keep your balances low and aim to use no more than 30% of your total limit. Anything higher than this will make the creditor think that you are supplementing your income with debt.

Length of your credit history – 15%

The older your length of credit history, the better. Length of credit history is comprised of how long accounts have been open, how long specific account types have been open, and how long it’s been since those accounts were used. Accounts that are 5 – 8 years old are considered to demonstrate a good length of credit history.

Type of credit used – 10%

A good mix of credit consists of credit cards, bank credit cards (revolving accounts), and loans and mortgages (installment accounts). Possessing a good credit mix demonstrates that you can qualify for and handle payments on a variety of account types, which is viewed more favorably than having numerous credit accounts of only one type.

New credit – 10% 

Creditors will look at recently opened accounts. They want to see who gave you credit and when. Applying for too much credit at once might raise concern from a creditor. From a business perspective, applying for too much credit at once is a red flag for lenders as this could signal a business in dire straits and a business owner desperately trying to keep the business afloat. More accounts can mean more debt to handle and more payment deadlines to manage. Only open accounts you actually need. 

Understanding your credit is an important first step in identifying ways to repair and improve your personal and business credit. As shown above, the effort of paying on time and carrying a low balance on your credit accounts carries the most impact when trying to improve your credit over time. 


About Excelsior Growth Fund

Excelsior Growth Fund (EGF) helps businesses in New Jersey, New York and Pennsylvania grow by providing streamlined access to business loans and advisory services. EGF’s signature product, the EGF SmartLoan™, provides up to $100,000 in fast, transparent, and affordable financing through a secure online platform. Larger loans up to $500,000 are also available. EGF is a nonprofit organization and is certified by U.S. Department of Treasury as a Community Development Financial Institution (CDFI). Learn more