From mortgages and car loans to credit cards and mobile phone contracts, your credit score can make all the difference. But what is a good credit score? Let’s find out.
What is Considered a Good Credit Score Range?
Your credit score is used by lenders to assess your ability to manage debt. Essentially, they want to know if lending to you represents a risk, and your credit score helps them decide.
However, there’s no such thing as a universal credit score. Different lenders use different criteria, and each will use a credit reference agency (CRA) to compile information and calculate your score.
In the UK, there are three credit reference agencies:
- Experian, which provides a score between 0 and 999. Anywhere between 881 and 960 is considered 'good'.
- Equifax, which provides a score between 0 and 700. Anywhere between 420 and 465 is considered ‘good’.
- TransUnion, which provides a rating between 1 and 5. Rating 4 is considered ‘good’.
How is Your Credit Score Calculated?
To calculate your credit score, the three CRAs mentioned above pull together information from various sources, including:
- Account data: This includes info from your bank(s), credit and store cards, utility companies, mobile phone contracts, and more.
- Linked data: This includes addresses you’re linked to (such as your childhood home) and people you have a financial association with (such as a spouse).
- Search data: This covers any previous searches made on your credit file during an application.
- Electoral roll: This is a check of your current registered address and residence details. It basically helps to further verify your identity.
- Court records: Any instances of a County Court Judgment (CCJ), court debt or bankruptcy will be flagged by this check.
Whenever you apply for credit, lenders will analyse your credit report, your application form, and any additional information they hold on you if you’re already a customer. They then use all of this data to determine whether or not you’re eligible for credit.
What Affects Your Credit Score?
Your credit score scale can be damaged by the following:
- Minimum payments: If you make only the minimum payments each month, it could look like you’re struggling to manage your debts.
- Late or missed payments: If you make late payments (or you miss them entirely), it will reflect poorly on your ability to manage debt.
- Bankruptcy: Likewise, being declared bankrupt will mark you out as a risk to lenders.
- CCJs: County Court Judgments are used by creditors if they think you won't repay them. If the court agrees with the creditor, they'll issue the judgment and order you to pay the money back.
- A lack of financial history: If you’ve never borrowed money before, it makes it difficult to assess your ‘creditworthiness’.
- Repeated, frequent or rejected applications: If you make a lot of credit applications (especially in a short space of time) it could look like you’re desperate for cash and will negatively affect your score.
- Timing: It’s something we don’t always have control over, but if you switch jobs or move house and then make a credit application, it could be turned down as you appear — in that moment, at least — to lack stability.
It’s helpful to know that the above information isn’t permanently featured on your credit file. A missed payment, bankruptcy or a CCJ will be wiped after six years.
How Can You Get a Good Credit Score?
We’ve written about how to improve credit score in a separate article, but if you’re after the highlights, here are a few things you can do to achieve the highest credit score possible:
- Register to vote and make sure you appear on the electoral roll.
- Pay your accounts on time and in full each month to demonstrate that you’re reliable and can handle debt responsibly.
- Keep credit utilisation low. This is the amount of credit you’ve used divided by the total amount you have access to. For example, if you have a credit card limit of £5,000 and you’ve used £2,500, your utilisation is 50%. Typically, the lower the percentage, the higher your score (assuming everything else is in order).
We hope this article has helped you understand what makes a good credit score. Want to learn more about credit scores? Check out these articles:
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