The credit score. Could two words be more terrifying? Everyone from your parents to your banker to the talking heads on the news pressures 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?
We’ll guide you through the answer to these essential questions. But before we explore the answer to the ever-pressing question, “What is a good credit score?” we’ll take a look at what a credit score is exactly. To break it down step by step, let’s begin with the basics:
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.
Though the answer to this question varies from rating system to rating system, if you consider the numbers generally, there are a few patterns in the ranges of the different levels of quality of score within each system. Regardless of the rating system, credit scores can range from bad to excellent. Here is a brief synopsis of most credit scores and what they mean:
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 your reliability as a borrow for creditors so that their decision is easier when it comes to giving you credit (or not.)
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 smart 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 look into your options for 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, not against 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.