Your credit score is a representation of your “creditworthiness.” The higher your score, the more creditworthy you’re considered to be. If you’ve got a score of 750 or above, you’re doing pretty well.
This gives you more access to loans, lower interest rates, financing options, and business opportunities. Understanding credit scores, how they operate, and what they mean are important aspects of your financial health.
We’re going to look at credit scores today, giving you insight into everything you need to know. After we go through the essentials, we’ll look at how your credit score might affect your ability to get business loans.
Let’s get started and Learn if 750 Credit Score is Good Enough for Business Loans.
750 Is a Very Good Credit Score
Credit scores can range from 300 to 850. A credit score of 300 is considered to be very poor and restrictive to a person’s financial future. A score of 850 is perfect, and well above average.
For the most part, people fall somewhere into the 600-800 range. So, a score of 750 puts you in the “very good” category and should provide you with a lot of opportunities. Let’s look at the way lenders categorize credit scores.
- Very Poor: 300-570
- Fair: 580-669
- Good: 670-739
- Very Good: 750-799
- Exceptional: 800-850
As you can see, a credit score of 750 falls at the very bottom of the “very good” range. It’s a great score, but there’s still a lot you can do to improve it.
What Affects My Credit Score?
First, it’s important to note that there are three credit bureaus. These are credit reporting agencies that gather and organize consumer information and reference it against statistical data concerning financial risk.
These companies are Equifax, Experian, and TransUnion. These are the primary places where lenders and other entities will check your credit before giving you money. Most lenders report back to these credit bureaus on a regular basis, giving out information on the creditworthiness of their borrowers.
It’s important to note that each of these entities should have a unique credit score for you. The scores work on the same scales, but each company could have different information from different banks or lenders. So, don’t worry if you see a discrepancy among your scores.
That said, you should certainly fix discrepancies if there are gaping errors or missed information in your credit report. You can reach out to these companies and repair those mistakes.
What do these organizations use to determine your credit, though, and how much do different things matter? Let’s take a look.
1. Missed Payments
Your credit score is there to indicate how likely you are to repay your debts. Naturally, it makes sense that missed payments are the most important factor. Single missed payments can knock your credit score down significantly.
This applies to all of your loans, utility bills, rent payments, credit card payments, and other payments that could be reported back to a credit reporting agency. These payments account for a significant chunk of your credit score.
In fact, payments make up 35 percent of your FICO credit score. Many of the best lenders use FICO as their primary source for credit information.
2. Credit Utilization
Your credit utilization rate is a percentage taken from your credit limit divided by your current balances. This figure applies to lines of credit that aren’t installment loans.
Installment loans are payments like your mortgage or your car loan. Revolving credits are those that offer you a credit limit and require that you pay monthly bills as you enjoy the use of your credit. This applies mainly to credit cards and other lines of credit that you can pull from as needed.
Take your current balance (let’s say $2,000), divide it by your total credit limit (let’s say $10,000), and you get your utilization rate (20%).
This factor accounts for 30% of your FICO score and looks to address your dependence on non-cash funds, or funds that aren’t independently available to you. Your score will take a dip if you’re using 30% or more of your revolving credit.
This is something that a lot of people forget about when they start engaging with credit cards. Make sure that you know the exact 30% figure and stay underneath it unless you’re in an absolute emergency.
3. Good Credit History Timeframe
The longer you’ve had credit, the better your score generally is. Creditors like to see that you’ve had a long experience with credit. This proves that you’re reliable over the long haul.
For example, someone with a sterling payment history of only a year doesn’t have the same credit as someone who’s held down regular payments for the last 20 years.
This isn’t one that you can really impact or speed up. All you can do is start utilizing credit as soon as possible and make sure that you’re making your payments on time. This factor accounts for 15% of your FICO score.
Credit history length should also be encouraging to someone who doesn’t have a great score right now. This factor allows you to make up for any past mistakes by keeping regular payments for the next few years.
4. Types of Credit Mixed
You get points for variety as well. This factor accounts for 10% of your score, and it relates to the number of different types of institutions that you’re borrowing from.
This shows that you’re reliable across the board rather than in just one area. For example, a good mix would include car loans, business loans, mortgages, student loans, and a credit card. The types of credit don’t matter so much as the fact that there are multiple sources.
The better you can manage a complicated portfolio, the more creditworthiness you earn.
5. New Lines of Credit and Inquiries
The final factor is the type of new credit you have. It’s never a bad thing to have new lines of credit, although opening numerous credit accounts at once could be damaging to your credit score.
Further, applying for numerous lines of credit at once will drive your score up. Even if your personal reason for doing this doesn’t reflect poorly on you, the credit companies still see it as a financial risk.
This accounts for a small 10% of your score, but it’s still significant. If your score is 750 now, applying for 50 lines of credit in the next month has the potential to drop your score by 75 points!
Why Do All of These Things Matter so Much?
Some of the factors above might seem a little silly. After all, you know how creditworthy you are, so why should some algorithm or massive company get to determine your score?
Maybe you’ve just gotten out of a difficult situation that was no fault of your own, or you weren’t aware that credit history length was important so you have a poor credit score. These things happen, but, unfortunately, they still affect our credit.
This is because massive companies rely on approaches that deal with millions of people. On that scale, the company can’t always account for individual differences. Instead, when you’re dealing with millions of people, statistics stand out as the most reliable way to determine creditworthiness.
Things that are statistically significant in the population’s ability to repay loans are the factors that get used. For example, people who use more than 30% of their available credit are less likely to pay back their credit on time.
That makes withdrawing more than 30% of your credit an indication of risk to the lender. As a result, your score increases and the lender responds with higher interest rates or more fees for you as a way of mitigating risk.
What Kind of Credit Score Do You Need for Business Loans?
There usually aren’t any universal rules for business loans and credit scores. Sure, particularly low scores might dissuade lenders, but you’ll still have a shot at securing some type of business loan, no matter what your credit score is.
This is, in part, because there are a lot of factors involved in business loans. The quality of the business plan or the reason for loaning the money is also very important. You might have business partners, a good track record of business success, and more to prop you up when you ask for a loan as well.
That said, the creditworthiness of (you) the buyer is still very important. Just because a low score gives you a shot at some loans doesn’t mean you’ll have access to the loans you want.
Ideal Credit Scores for Business Financing
If you have a score of 750, you’ll be in good standing to get most of the loans you want. You might not get as good of an interest rate as someone with a score of 850, but you certainly won’t be turned away.
Even if your score slips down toward 700, you’ll still be in the running for most business loans. That said, you might have to try a little harder with your business credentials and other indications of creditworthiness if your score is below 750.
As we move down, we start to lose access to different loans. The Small Business Association (SBA) stops offering loans to those with scores below 680. You have a small chance of qualifying if your business credentials are extremely strong.
There are still a number of options when you’re at this point, but just note that the lower your credit score falls below 600, the more you’ll need to back your request up with other credentials. When you go below 640, you lose access to many bank loans for businesses.
So, while there aren’t usually minimum credit requirements, a particularly low credit score needs to be supplemented with other things that reduce the lender’s perceived risk.
How to Improve Credit for Business Loans
If you’re sitting at a number below what you need to get the loan you want, know that there are ways to improve your score. We don’t all have sterling credit scores of 800, but that doesn’t mean we can’t move forward.
So, what are some of the ways you can get a better score before taking out a business loan?
1. Open Manageable Lines of Credit
The more well-managed lines of credit you open, the better you’ll be able to boost your credit. Mistakes in your past start to look a lot smaller when they’re in the mix of a lot of good credit history.
One easy thing you can try is opening a credit card and simply using it once per month on something small. You use the card, pay the small bill, and improve your credit quickly. Your creditworthiness is judged by the bills that you pay, not by how expensive those bills are.
There’s no difference between a $1 monthly bill and a $5,000 one.
Note that opening too many accounts could be a negative thing, especially if you have to apply to numerous agencies to get credit. Hard inquiries drive your score down, so try to limit them.
If you don’t have any lines of credit open, do your best to open one and stick with it. When enough time has passed, you can open another if necessary.
2. Reduce Your Debts First
Your debt-to-income ratio is also something that contributes to your creditworthiness. That means the more you chip away at your debts, the better your score becomes.
So, start setting a little extra money aside to cover things like mortgage payments or student loans. In particular, knock out any small outstanding debts you have. Maybe there are one or two lines of credit that you’ve left alone for too long.
If it’s possible to pay off one or two thousand dollars of those, you might be able to give yourself a significant credit boost.
3. Deal With All Outstanding Balances
Before you deal with your debts, take care of any bills or payments that you’re overdue on. Clean those issues up first, then move forward to chip away at the rest of your financial situation.
Remember, timely payments are the top priority for credit agencies. The sooner you can straighten out overdue payments, the better.
Want to Learn More About Credit?
We hope Our Article 750 Credit Score for Business Loans, give you some good insight as you try to apply for business loans. There’s a lot more to learn about managing your finances, though. We’re here to help you with more ideas.
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