“However, a year’s worth of regular payments definitely can make a substantial difference in your score.”
IS A GOOD SCORE ENOUGH?
Of course, a solid credit score by itself may not be sufficient to grant access to credit. “On loans of over $100,000, we require a visit by a loan officer,” says James of Wells Fargo.
That’s what happened early in 1998 when Usua Amanam, 48, president of Amtrat International Corp. in Union City, California, applied for an increase in his credit line from around $200,000 to $500,000. “A loan officer came out to our headquarters, entered the data we supplied into his computer and promised to let us know within 48 hours,” Amanam says. “As it turned out, we got our approval within 24 hours, and we never had to submit papers to a loan committee or go through any kind of formalities. When I started dealing with Wells Fargo, back in the 1980s, it would take two or three months to get a much smaller line of credit.”
Again, credit scoring is the key to the rapid turnaround, according to James. “When a small business seeks a loan, we try to ascertain the character of the owner as well as the company’s ability to repay. Thus, our credit score for this purpose is based on a combination of business and personal credit histories. We have a range of scores that help determine the interest rates that need to be paid and whether or not collateral will be required.”
To see how credit scores actually work, compare the records of Consumer A and Consumer B in the accompanying box. Consumer A apparently ran into financial problems a few years ago but has kept his record clean since then. He’s been paying down his auto loan; he’s current on his credit card debt; and he’s not pushing his credit lines to the max. His lines have been in place for a lengthy time period and he hasn’t been applying for credit all over town. Therefore, although the four-year-old problems raise concerns, “this profile would probably represent an acceptable risk level to most credit grantors,” says Taylor-Shoff.
Consumer B, although he has never had serious credit problems, presents a more troubling picture. He has acquired all of his credit recently, and he’s using it to the limit, even over the limit, while actively seeking more credit. Already, one of his credit cards shows a late payment, a hint of future difficulties.
To most lenders, Consumer B would be a risky loan, so his credit score would be much lower than Consumer A’s. Therefore, Consumer A is a winner and Consumer B a loser in the credit scoring game. If you want to put more “W”s and fewer “L”s on your record, request credit cautiously and be sure to make all of your required payments regularly.
Here’s an example of credit scoring in action. Consumer A poses a low-to-average level of risk; his credit score is 706. Consumer B poses a high level of