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 How
to better understand your FICO Score, And why “Healthy”
Personal Credit is so important
Introduction
The role and importance of good personal credit has never been
more important than it is today. All funding sources, whether
they are a Bank, Credit Union, Automobile lender, Mortgage
Company, or a firm like ours, determine the risk associated
with a financial or funding relationship by analyzing personal
credit of the Principal(s) of a business. All funding sources
seek to answer a basic question as part of their Due
Diligence; “If we establish a relationship with this person,
how likely is it that we will be paid back on time?”
Our Accounts Receivable Management and invoice factoring firm has
utilized FICO scores as part of our standard Due Diligence
process for years. Since formation in 1997, we have found that
personal credit is one important part of the Due Diligence
process, and have found it to be an excellent tool is
determining whether to establish a business funding relationship with a
potential client.
What are Credit Scores and why are they so important?
As you are probably aware, there are 3 major credit reporting
agencies in the United States. These firms collect and keep
records on your use of credit and other information. Two of
the many products that they sell are credit reports and credit
scores. A credit score is a numerical figure that is a
snapshot of your credit report at a specific point in time. As
your use of credit and other factors changes, your credit
score also changes; for better, or worse.
There is nearly an unlimited amount of literature available on
the credit scoring and credit modeling industry. Much of this
information can be easily found online. Many of the ideas and
issues presented in this short article can be found at
www.myfico.com. There is an excellent publication entitled
“Understanding Your FICO Score” at the www.myfico.com website
that I would encourage you to read if you have interest in
additional information about how FICO scores are calculated,
how they work, what a FICO score considers, and how to check
your FICO score and credit report.
You may have heard your Bank or Mortgage company refer to your
“FICO score.” What is a FICO score? A FICO score is the most
widely and recognized credit score used in the United States
today. It was developed by a company called Fair Isaac. Fair
Isaac uses sophisticated models to develop a FICO score and
other credit related [tools to identify credit fraud, manage
credit accounts and others] products.
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