Before deciding on what terms lenders will offer you on a loan (which they base on the "risk" to them), they want to know two things about you: your ability to pay back the loan, and your willingness to pay back the loan. For the first, they look at your income-to-debt obligation ratio. For your willingness to pay back the loan, they consult your credit score.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. (and they're named after their inventor!). Your FICO score is between 350 (high risk) and 850 (low risk).

Credit scores only consider the information contained in your credit profile. They do not consider your income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status. In fact, the fact they don't consider demographic factors is why they were invented in the first place. "Profiling" was as dirty a word when FICO scores were invented as it is now. Credit scoring was developed as a way to consider only what was relevant to somebody's willingness to repay a loan.

Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.

Different portions of your credit history are given different weights. Thirty-five percent of your FICO score is based on your specific payment history. Thirty percent is your current level of indebtedness. Fifteen percent each is the time your open credit has been in use (ten year old accounts are good, six month old ones aren't as good) and types of credit available to you (installment loans such as student loans, car loans, etc. versus revolving and debit accounts like credit cards). Finally, five percent is pursuit of new credit -- credit scores requested.

Your credit report must contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This ensures that there is enough information in your report to generate an accurate score. If you do not meet the minimum criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.

Commercial Credit Score

This is a credit score based on a system ranging from 0 to 100, where the higher the score the better the credit risk the business represents to a lender. The score is further broken down into groupings.

70-100 the lowest risk exposure to an investor/lender. 50-70 is moderate risk exposure and under 50 is high risk exposure.

These scores are derived much the same way consumer scores are determined. Based on credit extended, credit usage, payment terms, judgements, tax liens, bankruptcy, etc.

Also, used in the determination of this score is the aging of accounts payable. When a business is extended credit on 'terms', it is how those terms are honored when payment is demanded and made that will have an impact on the score.

If the terms of credit extended state NET 30, meaning the payment is due in 30 days from invoice date, the business/business owner (debtor) has to pay the vendor (creditor) within the predetermined term period.  If the debtor pays the invoice early, then the creditor reports as being paid early. If the debtor pays by the due date, the creditor reports "paid as agreed". Finally, if the debtor always pay late, the credit  reports the debtor as a "slow pay".

In the business of credit reporting, showing you pay early or as agrees is better for your credit and the credit of a business.

We know that this ideal can not always be the case. This is why we offer Accounts Receivable Financing (Factoring) programs that are not debt or credit financing. When a business is able to factor it's invoices (billings), it avoids the cash shortages that deteriorate a business' credit rating.