Good credit vs. bad credit is all subjective. Insights on how borrowers and lenders view your credit rating.
As I speak to hundreds of business owners seeking financing, many ask, is it still possible to get a loan with bad credit?
What I have come to understand is that “bad credit” is subjective. There are individuals who are used to having a 730 credit score and when it drops to 680, they assume they now have bad credit.
On the other end of the spectrum, there are those who have maintained poor credit and when asked how their credit is they will say good.
When it comes to personal credit, it can have a big impact on the ability for small business owners to have access to capital.
I wanted to get a better understanding of how credit is ranked and how it can affect a small business owner who is potentially going to consider borrowing funds.
I reached out to Logan Skidmore, a former mortgage broker and the current President and Owner of The Credit Repair Men (THCM). THCM is a nationwide credit restoration company working with individuals and credit companies to improve credit profiles.
In our session he provided me with some great insight into how credit is viewed differently among lenders and some great tips for borrowers.
Related Article: Building Your SBSS Score: Steps to Improving Your Business Credit
Ricky Nila: How are credit scores ranked?
Logan Skidmore: Here is a general consensus of "ranking” from Credit.com.
- Excellent Credit: 750+
- Good Credit: 700-749
- Fair Credit: 650-699
- Poor Credit: 600-649
- Bad Credit: below 600
In reality...it doesn't matter if you have good, poor, or excellent credit.
RN: How does an individuals ranking affect them from borrowing money?
LS: Credit score and credit data are the only things that matter to the person who is considering lending you the money, not the individuals "rank.”
The lender will answer two questions based on the score and data:
- Do I want to lend this person money? Approve or deny.
- At what interest rate and terms will the reward outweigh the risk.
RN: How does this vary between lenders?
LS: Each lender will have their own "ranking" system. It may be that you must have a 640 credit score just to be considered at all. Well, both a 639 and a 640 fall under "poor" credit, but one is approved and one is denied.
Furthermore, a 649 is "poor" credit and 650 is "fair" credit, but both are approved and they both get the same interest rate and other terms.
Another quick scenario:
Let's say you have a 639 score and you approach multiple lenders for a line of credit. At the first lender you are denied. The second lender may offer you an approval for a $2,000 line of credit at 25 percent interest. A third lender might offer you a $3,000 line of credit at 12 percent interest.
You have "poor" credit but three different offers. My point is that this credit "rank" or classification is a very simplified way of understanding your credit health but fairly useless.
RN: Do you have any advice on how a borrower should approach a lender depending on there credit rank?
LS: Here is how I look at "ranking" as far as usefulness for a borrower.
Depending on what your credit is you can generally determine the following. Below 579, more than likely you will be denied for practically everything. Only second chance places will touch you. With credit scores between 580 and 739, you have a decent chance for approval and the higher the score the more likely the approval is.
The higher the score, the better the terms. With a score of 740+, credit would be approved for everything and you get the best products and terms that the lender offers.
RN: When should someone consider using a credit repair service?
LS: When I look at scores based on need for credit repair: Below 600 needs professional credit repair and coaching. Between 600 and 639 may need professional credit repair but probably just needs coaching. And a score of 640+ does not need professional credit repair, but a few credit tips could be very beneficial.
Related Article:Why Smart Entrepreneurs Separate Personal From Business Credit
The Big Takeaway
After my session with Skidmore, I realized that credit rank is just as subjective among lenders as it is among business owners seeking financing.
If you are a small business owner who has been looking for financing and been denied, do not give up. Chances are that if you continue to search and apply to various lenders you can get the financing you are looking for.
The financing may not offer the most favorable terms for those with troubled credit. However, that will be for you to decided to accept or deny the terms.