If you aren’t accustomed to keeping tabs of your personal and business credit scores, you may want to resolve to check it often in the new year. With increasing interest rates, your credit scores are going to be that much more important to your finances in 2018 and beyond.
To start with, your credit score is one of the most important factors when it comes to borrowing money, determining the rates you’ll pay on everything from a Small Business Association loan to a business credit card and basically any other kind of business financing options. So how can you tell if your credit score is “good?”
There are a lot of different credit scores, and lenders use any number of them in determining whether you qualify for financing. In general, though, credit scores tend to fall within a fairly similar range.
Most, in fact, are based on a scale between 300 and 850, with the highest score being the best possible credit. Your FICO score, for example, will be based upon the following:
- Excellent Credit: 750+
- Good Credit: 700-749
- Fair Credit: 650-699
- Poor Credit: 600-649
- Bad Credit: below 600
Still, whether you’ll qualify for a particular loan or credit card has more to do with the lender than it does your credit score. So, it is possible to qualify for a business credit card for bad credit from a bank that is extending credit to such borrowers. But here’s where your credit scores become really important. Sure, you’ll qualify with that particular lender, but they’ll likely charge higher interest rates because you are considered a riskier borrower. With the Federal Reserve having already increased interest rates three times in 2017, that means the cost for borrowing has also increased. Your bad credit could make growing your business or getting some gap financing that much more expensive.
Why Knowing Your Score Is Important
Just because you’ve always paid your bills on time doesn’t necessarily mean you have good credit. There could be errors on your credit reports that are dragging down your score, or you could unknowingly have been the victim of fraud. The only way to know whether you have a good credit score is to check, and do so regularly. You can check your credit scores for free on Nav.com.
Why Good Credit Matters
A good credit score typically means you’ll get lower interest rates when you borrow, which means you’ll spend less money on interest over time. For example, the difference between financing a $50,000 loan over five years at 6.75% interest with good credit or 9.25% with OK credit is roughly $8,698 versus $12,639 in interest respectively. It’s easy to see how your good credit can end up saving you a lot of money over time.
How to Get a Good Credit Score
To start with, it’s a good idea to check your credit reports annually so you can see exactly what is affecting your scores. Next, it’s important to monitor your credit by checking your credit scores regularly. This not only allows you to spot errors or fraud quickly, but it allows you to monitor your credit improvement over time.
As you do this, it’s also a good idea to monitor any risk factors that may be noted in your credit reports. For example, if your debt ratio is too high, it could be weighing on your scores and you’ll want to focus on paying that down. There are five key categories in your credit reports where these risk factors may take place. They include:
- Payment History (35% of most scores)
- Credit Utilization (30% of most scores)
- Length of Credit History (15% of most scores)
- Mix of Accounts (10% of most scores)
- New Credit Inquiries (10% of most scores)
Obviously, you can’t just focus on paying your bills on time in order to build or maintain your good credit. You’ll want to also keep your debt low, keep your accounts open, particularly those you’ve had longest, and be sure to have a good mix of account types, such as installment loans and revolving accounts. Likewise, limiting the frequency with which you apply for new credit will be helpful in keeping your scores higher.