Any time you apply for a loan—regardless of whether it’s a personal loan or a small business loan—the loan officer will likely ask you about your personal credit score. The need to maintain a good personal credit score will likely never go away for most business owners, so knowing your score and what it means will make it easier for you to determine where to focus your search when looking for a small business loan.
While there might be some differences between the three major personal credit-reporting bureaus (Experian, Equifax, and Transunion), the following is a pretty good representation of what the scores mean:
Above 800: Excellent—If your credit score is above 800, lenders will likely roll out the red carpet for you. It will be relatively easy to qualify for a loan and you can expect the best interest rates and most favorable terms.
720-799: Very Good—This score identifies you as a low-risk borrower and you’ll be able to go just about anywhere to find a loan. You shouldn’t have any trouble at the bank and you should expect to be offered excellent interest rates.
680-719: Good—Many Americans fall within this range. A borrower with a score within this range can expect to see more approvals and better interest rates.
620-679: Fair—This is considered a moderate risk score. Although a small business loan is possible, this borrower will likely not be offered a low interest rate. A borrower in this category should expect to pay a moderate to high interest rate.
580-619: Poor—This is considered a high-risk credit score. A borrower with a credit score within this range should expect to pay a higher interest rate and will probably not find a loan at the local bank.
Below 579: Bad—Although there are some small business loan options available for borrowers with at least a 500 personal credit score, it is considered a high-risk score and will likely come with a high interest rate.
The credit system in Canada is similar to the United States, but there are some differences. For example, in the U.S., a consumer is able to order a free copy of their credit report once every year; while in Canada, they are able to order the report any number of times provided the request is made in writing and the report is delivered by mail. Equifax is the primary credit-reporting bureau in Canada.
Building a strong personal credit score (or breathing life into a score that is struggling) doesn’t happen overnight, but there are things you can start doing today that will help you build a strong personal credit score and ultimately improve the odds of qualifying for a business loan.
Interested in learning more about a business loan with low personal credit requirements and doesn’t require specific collateral? Check out our explanation page here.