A Credit To Small Businesses: Equifax Debuts New Scores

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We’ve talked before about the importance of tracking your credit scores. Now, Equifax is offering up a new tool for your toolbox. Perhaps it’s a hammer?

Equifax Rolls Out Scores

In essence, Equifax is offering up new metrics for determining the creditworthiness—yes, that’s actually a word—of your small business. If you’ve tried to get working capital* or financing of any kind over the last couple of years, I’m sure you appreciate how utterly infuriating it was even without the additional hassle of mediocre credit scores.

It’s not that small business tracking is new—Equifax and the other major companies offer up reports for a price already—but the credit reporting bureau is hoping that these new metrics will better define the scores of small businesses across the nation.

So what’s new? I’ll let the company’s press release do the talking:

  • Automated scoring systems that are built on pre-recession, recession and post-recession data.
  • Models that incorporate twice as many data attributes as other industry scores, including large and small business, public and private organization and time series variables.
  • A new, minimum scoring criterion to validate the legitimacy of a business and verify application data for potential fraud.
  • Scorecards that can be applied automatically based on business size, eliminating the need for multiple systems and scores.

Nothing earth shattering, perhaps, but it does sound like it provides a clearer picture. We like those.

The Importance Of Credit Reports

In case you need a refresher course on why you should care about your credit reports, I’ve got you covered. Let’s take the Way Back Machine to early April, when I was a strapping young lad with a head full of information:

When you’re out to get a handle on your credit, you should first understand what is weighed to produce your final credit report. The biggest components, accounting for about 65 percent of your report, are payment history and amounts owed. It may be obvious, but it’s worth repeating that if you’re frequently behind on payments and have amassed a ton of debt, your score is going to be lower than a snake’s belly. Length of credit history, new credit and types of credit are also important, so diversify your credit use and make sure you have a handle on it as early as possible in your business’s lifespan.

Be careful with those cards, though. Because outstanding debt is such a big piece of the pie, the fact that companies are easing credit limits can actually work against you if you’re carrying a lot, even if you’re not actually altering your spending habits.

For small businesses, that last piece of advice is particularly resonant, because every small business is carrying around debt from credit cards, working capital, and a host of other sources. Keeping a close eye on how much debt you have lying around the shop is smart for any number of reasons, but it’s especially important for keeping your business credit score high.

Would you consider using Equifax’s services? I’d like to hear what you think.

Photo credit to Rotorhead at http://www.sxc.hu/photo/785364

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*Working capital not available in the following states: AK, DE, ND, VT