Doing a credit scoring model is a useful way to set credit limits. If you do not have a software program that automatically can assist you with setting limits, you can designate a certain amount of points for each category.

But before you do that, you want to make sure that you have everything in order. This includes:

Signed credit application
Signed terms and conditions page
Signed personal guaranty
At least three trade references

And then start calculating.

For example:

Years in Business:

Less than five years: 2 pts.
Over five years: 5 pts.

Payment History:

Prompt Pay: up to 5 pts.
Slow 1-30 days: up to 4 pts.
Slow 31-60 days: up to 2 pts.
Slow over 60 days: 0 pts.

Personal Guarantee: 5 pts

Once you've got a total score, create a model like the one below and set your client's credit limits accordingly.

12-15 pts.: $10,000-$15,000

8-11 pts.: $5,000-$10,000

4-7 pts.: $1,000-$4,000

<2pts.: Credit Card Only