Guide - 13 Personal Credit | EquifyX Capital

Small business owners must maintain strong personal credit scores throughout their entrepreneurial journey. Lenders consistently examine the personal financial history of business owners, particularly for startups less than a year old that haven't established business credit records. Traditional lenders like banks and credit unions primarily use personal credit scores to assess creditworthiness for new businesses.

Understanding Your FICO Score

Introduced in 1989, the FICO score uses a 300-850 scale calculated by three major credit bureaus: Experian, TransUnion, and Equifax.

The scoring formula breaks down as follows:

Payment History (35%): Late payments, bankruptcies, judgments, and charge-offs negatively impact your score.

Amounts Owed (30%): Includes debt-to-credit ratios, number of accounts with balances, and amounts owed across different account types.

Length of Credit History (15%): Average age of accounts and oldest account age matter most—longer credit history improves scores.

Credit Mix (10%): Managing different credit types (revolving, installment, mortgage) demonstrates financial responsibility.

New Credit (10%): Hard inquiries can temporarily reduce scores, though rate shopping for mortgages or auto loans typically won't hurt.

Credit Score Ranges and Lending Implications

Below 579 (Bad): High-risk classification with limited financing options and elevated interest rates. Traditional bank loans unlikely.

580-619 (Poor): Some financing available but expect high interest rates and bank loan difficulties.

620-679 (OK): Moderate-risk category with possible loans but higher interest rates. SBA typically requires 660 minimum.

680-719 (Good): More approvals and better rates available across various lenders.

720-799 (Very Good): Low-risk borrowers receive excellent rates and favorable terms.

Above 800 (Excellent): Best possible rates and most favorable lending terms.

Six Credit Improvement Strategies

Monitor Your Score: Check your free annual credit report and consider credit monitoring services for ongoing awareness.
Maintain Low Credit Utilization: Keep credit usage around 15% of available limits, even if paying balances in full monthly.
Avoid Balance Transfers: Moving balances between accounts doesn't improve scores and may appear as financial manipulation.
Pay On Time: Since payment history represents 35% of your score, even one late payment can cause significant damage.
Limit Unnecessary Credit Applications: Multiple hard inquiries reduce scores, so only apply for needed credit.
Practice Patience: Credit improvement takes six months to a year of consistent effort, but the results can be substantial.

The Bottom Line

While personal credit scores may not perfectly predict business financial behavior, they remain crucial for small business owners seeking traditional financing. Maintaining strong personal credit opens doors to better loan terms, lower interest rates, and increased approval odds for business funding needs.