Good News: Your Credit Score Might Just Get a Bump In the Right Direction A FICO study found that public records of adverse civil judgments are too often wrong to rely on when calculating credit ratings.
By Howard S. Dvorkin Edited by Jessica Thomas
Opinions expressed by BIZ Experiences contributors are their own.
Being a successful BIZ Experiences can mean enduring insults from competitors and even lies from jealous peers. Once you climb to the top of your industry, though, this doesn't bother you. When you've established a good reputation, those people can't really hurt you.
However, when you're just starting out, you're like a lion cub: One day, you'll rule the jungle, but until you reach a certain size you're vulnerable. This is my long way of explaining why an under-reported FICO study is crucial for new BIZ Experiencess. Fair Isaac Corp. (better known as FICO) is the lion of credit scores. It's the largest of several companies whose number-crunching algorithms determine whether you'll get a loan and at what interest rate.
Related: The States With the Best and Worst Business Credit Scores
FICO recently studied some changes coming to the way credit scores are calculated. Some background: Starting in July, your credit score will no longer be dinged by all civil judgments and tax liens. Why? Because the Big Three credit bureaus – Equifax, Experian and TransUnion – have agreed these public records aren't reliable. In fact, they're wrong often enough that they can unfairly drag down a credit score.
FICO crunched the numbers and made some predictions about these changes, According to NBC News – one of the few mainstream media outlets to really cover this story – "out of the 200 million Americans with credit scores, 12 million consumers will see them increase in July."
NBC News added, "However, it may not be by much. FICO projects 11 million consumers will see a score increase of less than 20 points." Then again, a real estate publication called The Real Deal offered the best news stating: "Hundreds of thousands of the increases will be super-sized -- in the 40 to 60 points and higher range."
Related: 7 Ways to Build and Improve Your Personal Credit Score
What's missing from that reporting is the out-sized impact these changes can have on new, and even veteran, BIZ Experiencess. While a hike of 20 points won't make the difference between success and failure, the cumulative and psychological effects may be notable. For instance, some young BIZ Experiencess are hard-working and know their industry, but they're not yet a good judge of character. Stories abound of ethical BIZ Experiencess who hook up with unethical partners. The result can be a civil judgment that sticks with the ethical partner and drags down a credit score that will be needed later for a new loan.
The same thing happens with tax liens. More than few BIZ Experiencess have made serious mistakes that got them in trouble with the IRS. That doesn't necessarily make them bad people or even bad business leaders, as long as they own up and learn from their mistakes. Now those mistakes won't follow them for years.
How important is a credit score? As BIZ Experiences has reported before, a good credit score can save you more than $100,000. Of course, established BIZ Experiencess have a business credit score, which BIZ Experiences has given solid advice for boosting. These changes will help both personal and business scorers, but it's true that many brand-new BIZ Experiencess use their personal credit to launch their enterprises.
Related: The Secret Credit Score Every Business Owner Should Know About, and How to Build Yours
Then there's simply the psychological aspect of these changes. We often focus on the numbers, as well we should, but the reality is, bad news takes its toll when you pour your life into your new business. Just knowing most civil judgments and tax liens aren't hurting your credit score is enough to put a smile on your face, regardless of its impact.
