We hear so much about the importance of having a good credit score, but what exactly does this mean? Your credit score is a number that is used to determine how reliable you are as a borrower. This score can make the difference between a lender taking a chance on you when it comes to taking out a loan or being overlooked completely.
It is a number from 0 to 1,200 (depending on the credit reporting agency), and the higher the score, the better. It stands to reason that we want to ensure our credit score is as high as possible, but what is a good credit score? How do banks and other lenders look at this number and what are they looking for?
What Makes Up Your Credit Score?
Firstly, let’s take a look at all the factors that can contribute to your credit score. Your credit score is determined by the credit reporting agencies. There are 3 credit reporting agencies in Australia: Equifax, Illion and Experian. These agencies take into account a number of things when determining your credit score:
- Missing repayments: you want to make sure you make all the repayments on time, each month for it to reflect well on your credit report.
- Defaults: if you have a debt over $150 and are at least 60 days overdue your payment, then this is considered a default on the loan and will result in a negative listing on your credit file.
- Paying bills late: paying bills late or going into overdraft can result in a negative listing on your credit report.
- Making too many credit applications: this suggests you have been knocked back by a number of lenders.
- Court judgements: if you have any court appearances related to debt these will show up on your credit file and affect the score.
- The amount you owe: if you owe too much and are stretching yourself thin, this will reflect in your credit report.
- Credit utilisation ratio: this refers to how much of your available credit you are actually using. If you are maxing out your credit cards, it suggests you are already at your borrowing limit.
- Types of credit used: the more variety you have, the better.
There are more factors too, and occasionally, a negative listing can appear on your report incorrectly. For this reason, it is always a good idea to check your report every now and then and make sure it is accurate and up to date.
What Is a Good Credit Score?
When it comes to a good credit score, each credit reporting agency has its own ranges which determine how you rank. These are usually from Poor to Excellent and they all fall into a similar ballpark in terms of numbers. Here is one example from Equifax:
Excellent: 833 – 1,200
Very good: 726 – 832
Average: 622 – 725
Fair: 510 – 621
Poor: 0 – 509
While this only covers one company and how they assess your score, it does give a good indication of how lenders look at your score and determine what it means for them.
So what is a good credit score? Anywhere from 700 and above is considered Very Good to Excellent and will be looked upon favourably by lenders when it comes to taking out a loan. It’s when you creep into the lower brackets from Average to Poor that taking out a loan becomes difficult. Having a bad credit score can mean:
- High interest rates
- Strict, rigid loan terms
- Low chance of loan approval
- And many more drawbacks...
If your credit score is 1,000 or above, it means you have the best credit possible, and you are definitely in a minority. This title is held by about 3.5% of Australians. You are likely to be older in age, as this is something you have to work towards over the years. If you want to know what is a good credit score? This is it! Having a good credit score will put all the bargaining power into your hands when it comes to getting a loan. This means:
- Lower interest rates
- More flexible loan terms
- Greater chance of loan approval
- And many more benefits...
Improve Your Credit Score
Are you looking to improve your credit score? Now we have an idea of what is a good credit score, you might realise that yours needs a bit of work. In order to increase your chances of being able to take out a loan, you want to make sure your credit score is a good reflection on you as a borrower.
If your number is lower than you would like it to be, then get in contact with the experts at Clean Credit today. We will be able to talk you through your credit file and look at removing any negative credit listings so you can get your credit score back on track. Contact us here.