What Is Bad Credit?

Understanding bad credit is key when planning to improve your score and exploring funding options. Lenders rely on FICO credit scores, which range from 300 to 850, to measure financial risk. These scores are tracked by the three major bureaus—Equifax, TransUnion, and Experian. Since each bureau may report slightly different information, your score can vary.

Generally, credit scores are categorized as follows: Excellent (700–850), Good (680–699), Fair (620–679), Low (580–619), Poor (500–579), and Bad (300–499). Keep in mind, every lender sets their own standards for what they consider “bad credit,” so it’s important to check their specific requirements before applying.

Fun fact: FICO stands for Fair Isaac Corporation, founded by Bill Fair and Earl Isaac, the creators of the original credit-risk model.

How Do You Check Your Credit?

If you’re unsure about your score, you can check it for free once a year at AnnualCreditReport.com, which covers all three credit bureaus. Many credit card providers also allow free monthly checks. For additional resources, platforms like Credit.com, Credit Karma, and Bankrate provide easy access.

Remember—personal credit and business credit are not the same. Personal credit may help offset weak business credit in some cases. To review your business credit, providers like Experian, Dun & Bradstreet, Nav, and CreditSignal offer paid reports that lenders and even clients can also access.

What Causes Bad Credit?

Poor credit can result from missed payments, carrying excessive debt, or even frequent loan inquiries. New businesses may also struggle with credit because they lack history or have taken on heavy startup expenses.

Loan shopping can also affect scores. Some lenders do “soft pulls” that won’t impact credit, but “hard pulls” can lower it since multiple inquiries suggest financial strain.

Why Can Bad Credit Make Loans Difficult?

Lenders view credit scores as a snapshot of risk. While some businesses with low credit are financially stable, many reflect high debt or missed obligations. Traditional banks, especially those backed by the FDIC, rely heavily on scores and often deny loans to those with poor credit. This can make alternative funding options, though higher in cost, a better path.

In some cases, you may explain your low score, but lenders usually base approvals solely on documented performance—making it important to improve credit before applying.

Where Can You Find Bad Credit Loans?

While banks and SBA loans are typically unavailable, several lenders specialize in financing for poor credit. Options include:

• LDC Funding: Merchant cash advances for scores as low as 500, with up to $1 million in funding.
• Fundbox: Invoice financing and credit lines, no minimum personal credit score, with $1,000–$100,000 in funding.
• Kabbage: Works with scores of 560+, offering $2,000–$250,000, integrated with bookkeeping software.
• BlueVine: Invoice factoring for scores of 530+, with funding up to $5 million.
• QuarterSpot: Fast funding for scores of 550+, with up to $250,000.

Other solutions include short-term loans, business lines of credit, invoice financing, equipment financing, merchant cash advances, and even business credit cards for rebuilding credit.

How to Apply with Bad Credit

When applying, lenders consider more than just credit scores. They also review annual revenue, existing debts, cash flow, business history, industry, collateral, and invoices. Highlight your business’s strengths to offset weaker areas and apply when your company is performing at its best.

What If You’re Denied Because of Bad Credit?

Being denied isn’t the end. Bad credit can be rebuilt through smart financial habits—making timely payments, reducing debt, and working with a financial advisor if needed. Most negative marks drop off after seven years, giving you a chance to start fresh.

The best way to repair your score is by showing lenders you can manage debt responsibly. Even starting small—with credit cards, rent payments, or utility bills—can raise your score and improve future loan approvals.