For many of us, credit scores are a vital component of our lives, even if we rarely give them much thought. As borrowing is an integral part of many of our lives, from mortgages to loans to credit cards, our credit score is vital to how we do business. For many, a poor credit score can limit what they do in their lives, and yet many do not understand how their score is decided, or its true consequences. Moolr took a look at what is considered a good credit score.
A credit score, also known as a credit rating, is a number that reflects the likelihood of you paying credit back. For lenders like banks and credit card companies it is a trust rating of sorts. This is because these financial companies will assess your credit file. The information shows them the risk involved in lending to you. The higher your credit score, the better your chances of lenders accepting you for credit, at the best rates. Because the lender can see that historically you could be trusted to lend money to. Your credit score influences your chances of getting all sorts of finances, from mortgages to loans to credit cards. It also influences the interest rates you will be offered for said products.
To look at how such scores are calculated, we’ve taken a look at one of the most popular credit agencies, Experian. They calculate a score for an individual whenever the person applies for credit. How they work out your particular score depends on the company you apply to. Different companies have different methods, so your credit rating may vary between them. Essentially, lenders check your borrowing history and how you typically repay money you’ve borrowed. Usually, they’ll take into account your ability to pay on time, whether you are on the electoral roll, and the amount of credit you take out.
The Experian Free Credit Score runs from 0-999. They base the score on information in an individual’s Credit Report, using the criteria set out above. You’ll lose points for having records on your report that companies consider negative, such as late payments or defaults on payments. Timeous payments on regular credit will score well. The average Experian Credit Score is 776.
There’s no ‘magic’ number that will guarantee you approval. What’s more, separate companies may look for different things in their potential customers. Thus you can easily secure credit from one company whilst failing to with another at the same time.
This is how Experian rate their scores:
961-999 – excellent. Unlikely to be turned down for anything.
881-960 – good. You should get most credit cards, loans and mortgages but the very best offers may be beyond your reach.
721-880 – fair. You might get OK interest rates but your credit limits may not be very high.
561-720 – poor. Speaks for itself. You will struggle to get finance much of the time. You will still be accepted for some however, but these acceptances may come with higher interest rates due to your credit score.
0-560. You’re more likely to be rejected for most credit cards, loans and mortgages that are available.
Credit agencies update your score every 30 days. It’s important to note that your credit rating isn’t set in stone. It’s a living, breathing thing that can change with certain kinds of financial behaviour. So, it can go up or down over time. You can improve your rating by making payments on existing credit on time. Also, if you are not on the electoral roll, ensure you are as soon as possible. Check out guidance on this site as to how to improve your score further. Do your research so you give yourself the best chance of lenders accepting you for finance in the future.