Upstart, non-FICO credit scoring systems have been tagged with the nickname “FAKOs” (pronounced “fake-o”). While they use similar methodology and arrive at numbers not dramatically different from FICO scores, they’ve achieved only a fraction of FICO’s market saturation. FAKOs include VantageScore (jointly developed by Equifax, TransUnion, and Experian), PLUS (developed by Experian), and TransRisk (developed by TransUnion). Know when you’re looking at a FICO or a FAKO score.
Carrying too much debt can lower your credit score. Your debt-to-income ratio is calculated by adding up all of your monthly debts and dividing them by your gross monthly income (before taxes). Most lenders set their limit at a 36% debt-to-income (DTI) ratio.
There’s many a story about entrepreneurs who’ve launched businesses by spreading the cost across multiple credit cards—but they tend to leave out one detail: a credit score of 680 or above. Without that, it’s difficult to get one card, let alone several, with low interest rates and high balances. On the upside, credit cards provide access to cash quickly and offer the aforementioned low interest rates, payment flexibility, and an unsecured line of credit (meaning you won’t have to put up collateral, like your house).
You’ve seen the commercials for apps that let you check your credit score for free with no negative effect on your number. That’s probably true, but a little misleading. First, sometimes those apps are sending you to a FAKO (always check the source). Second, checking your own credit score, known as a soft inquiry, has always had zero impact on your digits. Only official bank checks upon application for a loan or credit card, known as hard inquiries, affect your credit score (usually knocking off five points or less, then disappearing after two years).
Failure to pay non-debt bills, such as utilities and rent, doesn’t count against your credit score. So even without lights, water, or even an apartment, you could still theoretically boast a 680—though it may be difficult if you also neglected to pay your internet or cell phone bills. Important note: collection accounts and unpaid medical bills do not fall under the non-debt umbrella.
In the cold, analytical eyes of FICO, you may be a number, but it still takes people to build businesses—and credit scores. Creating and maintaining a good credit history is essential to hitting the FICO sweet spot, which can mean the difference between getting your business off the ground or never moving past the planning stages. There are few outside influences that will affect your business future more. So learn your FICO score, then work toward raising it.