Credit Score: How It’s Calculated & How It Impacts Practice Ownership | ADA Member Advantage

Credit Score: How It’s Calculated & How It Impacts Practice Ownership

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By Michael Jerkins, MD, M.Ed

Your credit score plays a big role in your life. It is a numerical representation of your creditworthiness and financial responsibility and plays a significant role in various aspects of your financial life, including your ability to secure loans, mortgages, and even to become a dental practice owner.

Understanding how your credit score is calculated and its implications on practice ownership is crucial for dentists aspiring to start their own practices.

Here’s what you need to know

How Credit Scores Are Calculated

There are five factors that make up a credit score:

  1. Payment history can make up to 35% of your credit score and takes into account on-time payment of bills.
  2. Total amount owed comprises up to 30% of your score and analyzes the percentage of credit being used in relation to the amount available to an individual.
  3. Length of credit history counts for up to 15% of a credit score and rewards longer timeframes because of a more robust payment history.
  4. Credit types can make up to 10% of the score and take into account the amount of installment credit (like mortgage and car loans) and revolving credit (like credit cards).
  5. New credit is up to 10% of the score and looks at new accounts, new applications and the most recent account opening.

Impact On Practice Ownership

Your credit score can significantly influence your ability to become a practice owner in the following ways:

  • Securing financing: Whether you're purchasing an existing practice or starting from scratch, you'll likely need financing. Lenders use your credit score to determine the terms of the loan, including interest rates and the amount you qualify for. A higher credit score can help you secure better terms, potentially saving you thousands of dollars over the life of the loan.
  • Negotiating leases: When leasing office space for your practice, landlords may conduct a credit check to assess your financial stability. A higher credit score can give you leverage in negotiating favorable lease terms.
  • Obtaining business credit: A good personal credit score is often required to qualify for business credit cards or loans, especially for new businesses without an established credit history.
6 Ways To Improve Your Credit Score

Here are some ways to raise your credit score before pursuing practice ownership:

  • Pay your bills on time.
  • Lower your credit utilization by paying down credit card balances.
  • Review your credit reports for late or missed payments, mistakes, high balances, etc. as these can all lower your score.
  • Limit requests for new credit within a short amount of time. Each time a creditor conducts a hard credit inquiry to determine your creditworthiness, it can cause your score to drop by a few points.
  • Self-report favorable payment history. You may be able to add payment history from rent, telecommunications and utility payments to strengthen a thin credit record.
  • Don’t close old credit accounts as this can lower your credit utilization and length of credit history.

Don’t let credit score be the thing that holds you back from practice ownership. Make steps to improve your credit today.

About Michael Jerkins, MD, M.Ed

Michael is the President and Co-founder of Panacea Financial and is also a practicing physician in Little Rock, AR. After earning his BBA in Economics he deferred his medical school acceptance to teach middle school science in the Phoenix, AZ area while also earning his Masters in Education from Arizona State University. He then completed medical school at the University of Tennessee Health Science Center before finishing his residency at University of Cincinnati Medical Center and Cincinnati Children’s Hospital.

About Panacea Financial

Endorsed by ADA Member Advantage for practice financing, Panacea Financial, a division of Primis (NASDAQ: FRST), is a nationwide financial services company offering products in all 50 states as well as Washington, D.C. and Puerto Rico. Panacea offers a full suite of banking solutions specifically built for doctors, by doctors. Learn more about Panacea Financial, and special rates available to ADA Members.