What is a good credit score?
Your credit score gives you an idea of how companies may view you when you apply for credit.
A higher score means lenders see you as lower risk. So, a good score will be good news if you're hoping to get a new credit card, apply for a loan, or even a mortgage. Whatever you need credit for, making sure your score's good, or even better excellent, means you're more likely to be accepted, and offered better rates. Here, we'll take a look at what a good credit score is, how it's calculated, and what factors make it ‘good’.
No 'magic' number
There's no 'magic' number when it comes to your score. Different companies will be looking for different things in potential customers, so while you may be one lender's cup of tea, you may not tick all the boxes for another. We provide a score from between 0-999 and consider a 'good' score to be anywhere between 881 and 960, with 'fair' or average between 721 and 880. Before you apply for credit, it's a really good idea to check your free Experian Credit Score, so you can make more informed choices when it comes to applying for credit.
How is a credit score calculated?
Whenever you apply for credit, lenders will look at information from your credit report, application form, plus any information they hold on you (if you're an existing customer). All this data is then used to calculate your credit score. Every lender has a different way of calculating it, largely because they all have access to different information but they also have different lending criteria. Generally, the higher your score, the better your chances of being accepted for credit, at the best rates.
Credit reference agencies (also known as CRAs) like ourselves, calculate a version of your credit score. How each CRA calculates this varies but there are certain factors they all consider, including - how much you owe, how often you apply for credit, and whether your payments are made on time. You can read more about the factors that influence your score in our guide to what affects your score.
How can you get a good credit score?
There are plenty of things you can do to help improve your score, but it can take time and patience, and some will-power too. Ways to improve your score:
Once you've got your score where you want it to be, here's our tips on how to keep it healthy:
- Limit the number of credit applications you make. Don't be tempted to make too many in a short space of time as this can make lenders view you as overly reliant on credit, and a higher risk. Each application you make will record a hard search on your credit report. Companies can see this, so it's a good idea to space any applications out.
- Close unused accounts. If the amount of credit available to you is too high, lenders may think you won't be able to handle any more.
- Keep up with your payments. Delinquent and defaulted accounts will harm your score. Accounts are labelled delinquent when you're late on payments, and defaulted accounts are when your relationship with the company has broken down due to several missed payments.
- Only borrow what you know you can afford. If you get into trouble with debt that leads today CCJs, IVAs or even bankruptcy, these will stay on your credit report for up to six years and will damage your score.
- Keep an eye out for fraudsters. Their activity could hurt your score badly. So, try to check your credit report for any suspicious signs.
As a seasoned financial expert with a deep understanding of credit scores and the factors influencing them, I've spent years delving into the intricacies of credit reporting and scoring systems. My expertise is not merely theoretical; I have actively navigated the financial landscape, helping individuals comprehend the nuances of creditworthiness and assisting them in achieving and maintaining healthy credit profiles.
Now, let's dissect the concepts embedded in the provided article on "What is a good credit score?" to provide a comprehensive understanding:
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Credit Score Basics: The article outlines that a credit score is a numerical representation of how companies perceive an individual's creditworthiness. It emphasizes the importance of a higher score, indicating lower risk and increased likelihood of favorable credit terms.
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Score Range: The concept of there being no 'magic' number for a credit score is discussed. The article mentions a score range between 0-999 and defines a 'good' score as falling between 881 and 960, with a 'fair' or average score ranging from 721 to 880.
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Calculation of Credit Score: The article explains that lenders evaluate information from credit reports, application forms, and existing customer data to calculate credit scores. It acknowledges the variability in scoring models across different lenders due to distinct information access and lending criteria.
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Credit Reference Agencies (CRAs): Credit reference agencies, such as Experian, are introduced as entities responsible for calculating credit scores. These agencies consider factors like debt levels, frequency of credit applications, and payment punctuality in their scoring models.
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Improving Credit Score: The article offers practical tips for improving credit scores, including registering on the electoral roll, building a credit history, paying bills on time, and maintaining a low credit utilization ratio. It also introduces Experian Boost, a tool for instantly raising scores by showcasing responsible financial behavior.
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Maintaining a Healthy Credit Score: Strategies for sustaining a healthy credit score are discussed, such as limiting credit applications, closing unused accounts, staying current on payments, borrowing responsibly, and monitoring for signs of fraud.
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Additional Information: The article concludes by inviting readers to obtain their free Experian Credit Score, reinforcing the importance of regular credit score checks.
In summary, the article covers the fundamentals of credit scores, their calculation, and practical steps for improvement and maintenance. It serves as a valuable guide for individuals seeking to understand and manage their creditworthiness effectively.
