If you don’t know what a FICO Liquid Credit Score is, you aren’t alone. Of all the measurements out there for business and personal creditworthiness, this one may be the most unfamiliar to business owners. But even though this number is not new, it has been gaining traction among lenders ever since the SBA first used it in 2014. Now more and more lenders are using it to help them decide who qualifies for a loan and who doesn’t. That means this is a number that should be on your radar!
Let’s break down what you need to know about the FICO liquid score, how this number relates to the credit scores you’re already familiar with, and how it may impact your ability to get a loan for your business.
Why Credit Scores Matter
If you’ve done your research, you already know how critical your personal and business credit scores are to a lender’s decision making. These scores help lenders determine what type of borrower you are and will measure your risk as a loan or credit candidate. In other words, it gives creditors some insight into how likely, or unlikely, you are to repay your loan.
Before we get into your FICO Liquid Score, let’s have a quick review of the more traditional credit scores you’re likely more familiar with:
Your Personal Credit Score
The Fair Isaac Corporation (FICO) score is a borrower’s personal credit score and is a measure of things like how many lines of credit you have open, your payment history, and the amount of money you owe on those open lines of credit.
Your score can range anywhere from 300 to 850, but to stand a chance at securing a decent loan with decent rates, you’ll want to shoot for a minimum personal credit score of 600.
The reason your personal credit score weighs so heavy on your loan application is because—for small business owners especially—you, as the owner, are your business. In fact, many small business owners tend to blur the line between their personal and business expenses much more than they should. So if a lender sees that you have a habit of not paying your personal bills, it’s fair for them to assume that your business finances are handled in a similar manner.
Your Business Credit Score
As you might guess, your business credit score is based upon your business’s history of paying bills and debts on time. If your business is very new, it’s likely that you don’t have much business credit history to speak of—and thereby a less than ideal business credit score. Or, if you’ve been in business for awhile but have poorly managed accounts payable, that can make your business credit score take a hit as well.
The FICO Liquid Score
Now that you had a refresher course on your personal and business credit scores, let’s talk about the credit score you may be less familiar with—your FICO Liquid Credit Score.
To put it simply, your FICO Liquid Credit Score, or FICO Small Business Scoring Service (FICO SBSS), is a combination of both your personal and your business credit scores. By combining the scores together, lenders are able to underwrite loans and process applications much faster. Additionally, this score gives lenders a deeper look into your borrowing habits and history as a whole, helping them to make funding decisions based on your total financial history
How Does it Work?
If you’re just starting out in business, or don’t have a strong business credit history, having a lender look at your FICO Liquid Credit Score, instead of your personal and business credit scores individually, can be a huge benefit. This is mainly because whatever you lack in business credit can be made up through a strong personal credit history.
While we don’t know the exact algorithm for calculating your FICO Liquid Credit Score, we can tell you that, aside from personal and business credit, the age of your business, and any liens currently held against your business, among other factors, will all be taken into account.
As opposed to your personal credit score, which ranges from 300 to 850, your FICO Liquid Credit Score ranges from 0-300. The higher your score, the better your chances of securing a business loan. Most lenders look for a minimum score of 160. However, the SBA will accept a minimum score of 140.
Why Does it Matter?
Simply put, your FICO Liquid Credit Score matters because it can affect whether or not your business gets approved for a small business loan, as well as the credit limit and terms of your loan. Furthermore, since the SBA first used FICO Liquid Credit Score in their decision-making process for their 7(a) loan program, it has gained a lot of traction among lenders. In fact, over 7,500 lenders nationwide are now incorporating this score into their decision making!
Although we don’t know exactly how your score is calculated, you can make sure you have a strong FICO Liquid Credit Score by focusing on all the same things that will help to improve and maintain your personal and business credit scores. Pay down your debts, dispute any errors or your credit reports, and make sure you pay all your bills on time, every time.
Meredith Wood is the Head of Content and Editor-in-Chief at Fundera, an online marketplace for small business loans. Prior to Fundera, Meredith was the CCO at Funding Gates. Meredith manages financing columns on Inc, Entrepreneur, HuffPo and more, and her advice can be seen on Yahoo!, Daily Worth, Fox Business, Amex OPEN, Intuit, the SBA and many more.