What is a good credit score? Well, it depends on what you want to do with your money. Generally, however the higher the number, the better off you are when getting access to credit.
But your score doesn't have to be incredible to get approved for credit, just high enough to show creditors you've got a good history of repayments. The good news is that anyone can reach this goal, given time.
In this blog, we'll dive into what you can do with your credit score and how to go about improving your credit score.
What are credit scores?
Credit scores are numbers based on all your financial transactions (like paying bills), and decide if you can take out loans or what interest rates you'll get.
Credit scores are between 0-1000 and fall into several ranges. Each range indicates a different level of risk that a lender takes on when they lend your credit. Ranges are not exact measures, however, as it depends mainly on the type of lender or credit provider you deal with — each will have its criteria, depending on what type of customers they want. So you may still be able to access credit if you're not in the best range.
Once you jump over into a new range, even if it's just by a point, you'll likely be considered for more credit options, and with less interest you pay — that's because interest is worked out on the 'risk' you pose of not repaying what you've borrowed.
Let's discuss the ranges.
Usually, this range indicates that you've been terrible with your credit or have no financial history (which can happen if you're starting).
Under 300, or even 350, it may just be that you haven't established any credit history, so lenders have no information to go off. Once you set up for your first loan or credit card, your history will be tracked — so start by paying all your bills on time.
You can still technically apply for loans, particularly from payday lenders, but you'll likely be paying high-interest rates when you do. Our tip (and we're not legal advisors) is to wait it out for now.
Tip for under 300's.
Build up a credit profile first before you engage in any borrowing activity.
This is a better position to be in — but you're still not in the prime (or even average) range.
At this level, you at least proved you've some credit history (although it might be pretty poor). You may have to put up with secured loans, though, which is where something big you own, like a car, acts as collateral (security in case you default on payments).
But, if you wait for a bit until your score improves, you can skip this stage.
Tip for under 500's.
Check your monthly bills and credit applications. A poor repayment history, particularly any missed payments, will prevent your score from rising further.
Check what you're paying for and start making a budget.
This is only for the short term to help you get into a situation where you can begin your new credit goals. If you start budgeting and improving your score now, you'll be free to take better loan deals later on — meaning things will start falling within your budget.
As a precautionary note, remember to check for anything unusual on your credit file, as credit reporting agencies can make mistakes.
At this level, you're considered about average — maybe you have a few more credit applications open, but not so many you look like you're desperate for credit.
Around this range, particularly if you hold out to 600 or more before beginning a credit application, you'll likely get approval from lenders. However, this also depends on your savings and other information you may be required to display.
Additional information considered, you should be able to secure mortgages and car loans from banks and other lenders at reasonable rates. You're also unlikely to come across security deposits, which is where an asset (including money) may be required upfront before securing any credit. Those with more significant credit scores can often avoid this, as their score indicates that they're already less of a risk, with their score acting in place of the deposit
Tip for under 700's.
Keep going. At the 500-700 range, it's not necessary to dive into a home loan just yet, as you can still improve your score. That said, you may wish to begin enquiring for credit to see what you could secure. Be wary, however, that enquires do lower your score — so don't make too many of them in one go.
Whatever you ultimately choose to do will be a balancing act. You could wait till your score improves to get access to lower rates, or you could take a gamble on the housing market if you like what you see. Whatever your choice, don't overextend your applications — otherwise, you're playing a dangerous game with both your credit score and savings.
Over 700 is nearing the top tier of credit scores.
At this level, you're likely to have no trouble getting low-interest rates, depending on your other savings information.
Tip for over 700's.
Continue the excellent work. At this level, particularly over 800 (and up to 1000), you're considered something of a rarity to lenders — the nearest thing to a safe bet.
It's a lofty goal to reach, so don't be concerned if you're not there. Often it takes people a lifetime of savings to achieve this goal or a spotless credit file. However, if you find yourself here, don't hesitate to enquire after considerable credit amounts, as this will lower your score.
Good scores depend on where you want to be — do you want the lowest interest rates on your mortgage? Or maybe you want a good car loan without the security deposit added? The higher your score, the more chance you will achieve your goal — mainly if that goal involves a large sum of money.
It could be a good idea to wait it out if your score is below 500 — but don't let that stop you from having a credit history. Sometimes having no history can be worse overall, as it gives lenders nothing to go on when it comes to checking what you're like with your finances.