What Does a Good Credit Score Look Like?
At Likely Loans we realise how important understanding your credit score is. That’s why we’ve answered some of the most common questions around the subject here, from ‘what is a good credit score?’ to ‘what’s my credit score?’ if you want to check the current state of yours.
What is a Good Credit Score?
There is no one answer to this question, instead you will have to check with the bank, lender or credit reference agency as to what their scoring system is. For the majority of cases, the higher the number is the better the credit score. As an example, the ratings for the three major UK credit reference agencies are:
- Equifax: A scoring system of 0 to 700 is used, with those between 420 and 465 deemed as good. Anything above this is seen as excellent.
- Experian: A credit score of 700 or above is considered good. The range goes from 0 to 999 and anything above 800 is seen as excellent. The UK average for an Experian Credit Score is 757.
- TransUnion: Using the VantageScore 3.0 model, there are five alphabetical credit score grades, which correlate to a score range. Grade A is 781 to 850, which is excellent, grade B is 720 to 708 which is good, and so on.
Why do I Need to Know my Credit Score?
Knowing what your credit score is and making sure it has a high rating is important for a number of reasons. Firstly, the better your credit score is, the more likely you are to be accepted to borrow money in the future. This could be for anything from a small loan, to a mortgage or business loan.
What’s more, the better your credit score the better the terms of any such loan are likely to be. Loan applicants with a good credit score generally qualify for larger amounts with lower interest rates, whereas a bad score can limit the credit and terms you have access to.
Factors that Impact a Credit Score
There are various factors which impact a credit score. These include:
- Payment history: Late and missed payments can have a negative effect, while a history of meeting payment deadlines has a positive one.
- Current debt: What you owe, the amount of available credit in use and how close you are to your credit limits has an impact.
- Number of accounts: How many you hold, how you use them, and their balances are considered.
- Types of credit: If you have a range of credit types (credit card, car loan, mortgage) it will be looked on more favourably than having a lot of just the same type (all retail cards, for example).
- Previous credit requests: Hard inquiries are made whenever you apply for credit and the lender views your report. Too many of these indicate risk and can lower a credit score.
What’s My Credit Score?
As there are three main credit reference agencies, going directly to them is the simplest way to find out what your credit score is. Checking your own report is not recorded so there isn’t a risk it will lead to a lot of hard inquiries.
How to Improve a Credit Score
Making sure all the factors which impact a credit score are considered and put into best practice is the easiest way to improve your credit score. Paying bills on time, taking out and successfully repaying loans and staying away from credit limits can all help build a good credit score, for example.
Other actions you can take include making sure you’re registered on the electoral roll, there are no mistakes on your credit report, instances of fraudulent activity, or that you are incorrectly linked to another person (such as a partner or spouse).
With a better understanding of what is a good credit score, you should be able to work towards developing one and benefitting from this in the future.
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