What is a Good Credit Score?
The credit score. Could two words be more terrifying? Everyone from your parents to your banker to the talking heads on the news admonish you to keep up a good credit score so that you can buy a house or a car or even just rent an apartment. But what is a good credit score? How do you get one? More importantly, as debt mounts up, how do you maintain one?
To break it down step by step, let’s begin with the credit rating system:
What is a credit score?
There are several scoring ranges used to determine credit scores including FICO, VantageScore, Plus Score, TransRisk Score, and Equifax Credit Score. The FICO, one of the VantageScore, the TransRisk Score, and the Equifax Credit Score all share similar ranges of either 280, 300, or 330 at the low end and 830 or 850 at the high end. The TransRisk Score and the other Vantage Scores go up higher to 900 and 990, respectively. It is a good idea to keep the ranges in mind when looking at your credit score. For instance, if you have a credit score of 800 on FICO, you are closer to the top end and have excellent credit. If you have that same score on one of the Vantage Scores, it’s not quite as amazing because you are still 190 points from the maximum credit score.
Here is a brief synopsis of most credit scores and what they mean:
- Excellent Credit: 781 – 850
- Good Credit: 661-780
- Fair Credit: 601-660
- Poor Credit: 501-600
- Bad Credit: below 500
How do they come up with the score?
Companies that score your credit base their results on things like the amount of debt you have, the age of the accounts you have open, and your payment history. The goal is to summarize information about you for creditors so that their decision is easier when it comes to giving you credit (or not.)
Why should I care?
There was a good reason that you have heard about credit scores all of your adult life. They actually do mean something! Having good credit means that you will be able to borrow money when you want to buy something like a car or a house or when you want to obtain a loan to start a business. It also means that banks view you as a safe bet and will give you a considerably lower interest rate. This saves you money in the long run.
You can improve your credit score by paying off your debt, being conservative when it comes to acquiring new credit cards (both business credit cards and personal cards), and not defaulting on any loans or making any late payments. Black marks like debts going into collections or bankruptcies will tarnish your credit for years to come, so try to avoid those! In the meantime, if you have a less-than-stellar credit score but need business financing, you can check out the business loans for bad credit.
For example, if you secure a loan for $25,000 and have to pay a high interest rate because of your poor credit, you could be paying an additional third of the loan in interest. That’s money that should be working for you.
Have you ever had a bad credit score? What is a good credit score to you? Did it affect you or your business? Tell us in the comments.
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