What is a good credit score?
Good credit score, bad credit rating and positive credit scoring are just a few of the numerous phrases which are often heard, usually when considering borrowing money. Everyone knows its better to have a ‘good credit score’ – but what does this actually mean? What is a ‘good credit score’ and how do you go about getting one?
What is a ‘credit score’?
In simple terms, your credit score is what lenders (ie banks, credit card companies, etc) will use when considering whether to lend you money. It is not the only thing that is considered, your history with that lender, your income and other debt you hold is also examined, however your credit score is an important factor. A good credit score implies that it is relatively safe for the lender to provide you with finance and that you will be reliable in making repayments. Correspondingly, a bad credit score suggests to lenders that you would be a high risk customer, you may have severe problems in repaying a loan and therefore, lending to you may not be financially wise.
What makes a credit score ‘good’?
It is important to understand that your actual numerical credit score varies according to which credit reference agency your potential lender uses to assess your suitability for finance. There are three credit reference agencies – Experian, Equifax and CallCredit. Each credit agency allows you to register with them and (for a small fee) access your credit report. This enables you to closely monitor your credit score, debate any discrepancies and look for ways to improve your credit rating. Each credit reference agency uses different score guidelines;- Experian’s credit score goes up to 999, anything between 0-560 being a bad credit score in need of much improvement, whilst the top credit score at Equifax is 900 and anything up to 299 is seen as a poor credit score and a score higher than 475 an excellent credit score. Clearly it is crucial to examine the criteria each individual credit reference agency use in order to understand the score you have been allocated.
How can I get a good credit score?
It is beneficial to know that your credit score isnt a set figure, it can improve or weaken. Missing repayments on loans, going into an unauthorised overdraft, defaulting on payments, being declined for credit; – these are all things that can lower your credit score. On the other hand being approved for credit, keeping up with loan repayments and paying off credit card or loans in full (rather than just making minimum payments) are all ways of improving your credit score. Registering with a credit reference agency can be helpful as you can personally take charge of your credit score and watch as it improves with your efforts.
In summary therefore, a good credit score is helpful when trying to obtain finance from lenders and vital when trying to get the lowest interest rate possible on any loans or credit. Your numerical credit score will vary according to which credit reference agency is used, however each agency can help you keep a track of your score and enable you to achieve a good credit score.