The main system in place for determining credit scores is called FICO^{® *}, an acronym for Fair Isaac Credit Organization, which is the company that owns this formula.

The three credit bureaus, Equifax, TransUnion, and Experian all use this system to establish credit scores, but they each market it under a different name. Equifax markets their product as Pinnacle; Experian as the FICO^{® *} Advance Risk Score; and TransUnion as Precision. It is important to be aware of these names, and to note that all of these products employ the same formula for establishing credit score.

The notable differences in the different products marketed are due to slightly differing data that each of these bureaus collects on any given individual or business’s borrowing habits. These bureaus are competitors, and work independently of one another. Certain aspects of one consumer’s credit history may not be reported to all three, and thus may be missing from one or more bureau’s data. Likewise, contested aspects of a credit history may not be removed as requested from all of the bureaus.

This is the largest reason for differing information from each bureau. Additionally, many consumers do not take an active approach to managing their credit score. The unfortunate result of this is that incorrect information is not at all uncommon on credit reports. It is essential for any fiscally successful individual or business to be aware of the information being reported on their credit reports for this very reason. Again, even in the case of incorrect or disputed items, it is not always the case that all three bureaus will remove the discrepancy.

When discussing variances in credit scoring, it is also important to note that scores may differ depending on the reason for which they are being generated. A report generated for a mortgage may be slightly different than one for a car loan, etc. This is because these different elements of the finance industry have different standards and requirements for lending money.

Another important distinction to make when looking at your FICO^{® *} credit report is the difference between credit score and credit rating. These terms are not synonymous as most consumers believe. The credit rating is a letter grade assigned from A to D, with + and connotations in between. It is based on a number of factors, one of which is the credit score, but other factors include your current financial situation and your history of debt management and payment and other borrowing practices.

The credit score, however, is based on five factors that have very specific weight in their importance. The most heavily weighed of these factors is payment history. This is considered to be the most significant indicator of an individual’s risk. FICO^{® *} assigns 35 percent weight to this element. The second most heavily weighted item is outstanding debt. This is considered to be the most significant indicator of your current fiscal health, and is assigned 30 percent weight.

The other factors in descending order of importance are the ‘age’ of your credit history (how long you have been establishing credit), types of credit currently issued to you, and the amount of recently opened or established credit.

Being aware of these different terms and variances in your credit report are essential to a fiscally fit individual or business.

* FICO, myFICO, and 300-850 score are trademarks and/or registered trademarks of Fair Isaac Corporation.

Small businesses are extremely important to our culture and our economy. In fact, small businesses make up a very significant portion of our economy. The financial success of America’s small businesses lies heavily on their ability to attain credit in order to maintain their business. It is shocking that nearly all small-businesses fail in their first months or years of business. One of the primary flaws of the way people run their businesses is being lax when is comes to book keeping and cash flows. However, taking some steps to alleviate and deter credit problems can ensure a continuous supply of capital and will almost ensure business success.

One of the main problems with not having a good credit score is that you may not be approved for loans and credit cards for your business and it is these loans and credit cards that establish and provide capital security for businesses. It is important for individuals to keep their personal and business credit separate. This means that you do not use personal credit accounts to establish or create capital for your business. This can put business owners at risk and makes them personally responsible for liabilities they may incur.

Separating your personal and business credit also has been shown to improve cash flows and maintaining accounts. This allows you to increase your credit and even help you save cash. Different kinds of credit are needed for all business owners and you should know what you need. For example, if you are running a major office based business with many supplies and office employees, you may need a forty thousand dollar line of credit with Office Max. But if you run a small business from home your line of credit may come from the bank that you do business with. Either way, lines of credit are like cash, they increase your assets and help the success of a business. You may even use a line of credit to directly give you cash, say to pay for marketing expenses or office space. Either way, these are all things that ultimately benefit your business. It is important for businesses to have capital, especially if they have these other lines of credit. This is because you cannot use your line of credit with Office Max to pay rent or payroll expenses.

If you have a corporation, you may be eligible to receive a lot of money in credit. This is very important for new businesses because they need to have significant amounts of capital to remain in business. Often times, companies that are incorporated can get one hundred thousand, five hundred thousand, or even one million dollars in credit limits, which is a great start up amount of money.

New small business owners should be sure to increase their chances of getting capital and should consider the benefits of separating personal and business accounts. This should be done for the sake of organizing cash flows, increasing capital, and ultimately increasing revenues.