Business Finance

Best and Worst Credit Scores Possible—and How Much It Matters

Mar 31, 2020 • 4 min read
Small business owner checking their credit score
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      When applying for business loans, credit cards, or other lines of credit, lenders put your credit scores in the spotlight. Credit scores tell lenders at a glance how responsible you are when it comes to borrowing money and paying bills. But just how important is that 3-digit number? Here’s what you need to know about the highs—and lows—of credit scoring. 

      Credit Score Ranges Explained

      Credit scores operate on a range, with a high end and a low end. The most popular credit scoring model for consumer scores is the FICO score. It’s the one used by 90% of lenders for credit approval decisions. Note, these scores are different from business credit scores.

      There are different FICO score variations, but the typical score range you’re working with is 300 to 850. VantageScores, which are an alternative credit scoring model, work along the same lines. The current VantageScore version also ranges from 300 to 850. 

      What Is Good vs. Bad Credit?

      Where you land on the credit score range depends largely on the information in your credit reports. FICO scores, for example, break down like this:

      • Payment history: 35% of score
      • Credit usage: 30% of score
      • Credit age: 15% of score
      • Credit mix: 10% of score
      • Inquiries for credit: 10% of score

      VantageScores don’t use that exact same formula, but they do factor in many of those same things. In terms of what your score translates to, a 300 would be the very worst score you could achieve on the FICO or VantageScore models; an 850 is considered a perfect score for either one. 

      That range leaves a lot of gray area in-between where you have different levels of credit. For example, here’s how FICO breaks down its credit score ranges and grades:

      • 800+: Exceptional credit
      • 740 to 799: Very good credit
      • 670 to 739: Good credit
      • 580 to 669: Fair credit
      • <580: Poor credit

      Understanding where your credit score measures up is important if you’re planning to borrow money. 

      Why Credit Scores Matter When Seeking Financing

      Credit scores matter for several reasons when you’re applying for loans and other lines of credit. For example, say that you’re using your personal credit score to apply for a business loan. Lenders will use your score to determine how likely you are to pay it back. 

      A FICO score in the excellent range virtually guarantees that you’ll be approved, whether you have a perfect 850 credit score or not. In fact, lenders typically don’t distinguish much between a score of 800 or 850. Either one sends a strong signal that you’re a low-risk borrower, based on your past payment history and credit usage. 

      Having a credit score in the poor or fair credit range, on the other hand, could make it much more difficult to get approved for loans. You may be limited to certain borrowing options, such as a secured loan or line of credit. Generally, the lower your score, the riskier you appear in the eyes of banks and lenders. 

      Your credit score also counts when it comes to how much you pay for a loan. As a rule of thumb, the higher your credit score, the lower the interest rates you can qualify for. Getting a low rate is important, whether you’re taking out a loan for your business or any other purpose because it means less money you have to pay back over time. 

      Is Aiming for a Perfect Score Worth It?

      Reaching a perfect 850 credit is certainly an achievement, as very few people find themselves in this territory. But working toward a perfect credit score won’t necessarily give you more of an edge when it comes to getting approved for loans or getting the best interest rates if you had an 800 score instead. 

      With that in mind, it’s helpful to work on improving your score as much as possible, particularly if you plan to borrow money to fund your business. If your credit score isn’t as high as you’d like it to be yet, here are some of the smartest things you can do to get it on the right track:

      • Pay your bills on time. Payment history accounts for the largest share of your personal credit score, so get in the habit of paying on time. Setting up automatic payments for your personal and business expenses can make this easier.
      • Reduce your debt. Carrying high balances on your credit cards can work against your score. Prioritize paying down some of what you owe, aiming to use 30% or less of your total credit limit.
      • Limit new inquiries for credit. Applying for new credit cards or loans can knock a few points off your score each time. Stick with applying for new credit only when it’s absolutely necessary.

      These seemingly simple measures can go a long way toward helping you boost your credit score. 

      About the author
      Rebecca Lake

      Rebecca Lake is a financial journalist covering small business, investing, and personal finance. Her work has appeared online at U.S. News and World Report, Investopedia, and The Balance. She also works with top banking and insurance brands, including Citibank, Ally, Discover Bank, and AIG.

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