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What is a good credit score?

What is a Good Credit Score?

Your credit score is what lenders use to decide whether to offer you credit or not. But a good credit score can be difficult to define because banks, lenders and credit reference agencies each use different methods to determine how they score you. This means that what may mean one thing at one credit reference agency, could mean something different at another. However, there are some key indicators of a good or bad credit score, and we should all be aware of these in order to keep an eye on our own.

With help from finance experts Becky Goddard-Hill, Richard Fenton and Pauline Paquin, we put together this guide on credit scores. Becky Goddard-Hill is an author and multi-award winning blogger, who runs the money-advise site, Family Budgeting. And Richard Fenton is a finance expert and media writer, and runs the UK Top 10 Business & Finance blog, Doesn't Grow On Trees. Last but certainly not least, Pauline Paquin is the writer behind Reach Financial Independence, featured on the likes of The Huffington Post, Business Insider, Forbes and Mint.

The credit score range

It's easy enough to find out how to check your credit score, but credit score ranges can be trickier to understand given that credit reference agencies use different scales to score. Generally speaking, however, they tend to range from 0-1000 and the higher the credit rating, the better your score is. As well as this, each credit reference agency should provide an indicator with your score, from 'bad' to 'good', or even a colour code. Here are the credit score ranges for two of the most common credit reference agencies:

Experian: 0-999

Equifax: 0-700

What is considered a good credit score?

A good credit score has many advantages, as it means that lenders are more likely to loan you money. Whether you want to buy a house, or do something as simple as take out a pay monthly SIM deal, a good credit score makes them more inclined to offer you credit and probably at a better intrest rate too.

If you're wondering what a good credit rating is, here are what two of the most common credit reference agencies say about their scoring system:

Experian: Experian consider anything between 721-800 to fair, 881-960 to be good and 961-999 as excellent.

Equifax: Equifax consider anything above 420-465 to be good and 466-700 as excellent.

What is considered a bad credit score?

To further understand what a good credit score is, it can also help to know what a bad credit score is.

A bad credit score can cause you financial troubles, as it indicates to lenders that you are high-risk – and therefore makes them less likely to lend you money. This means that you may not be accepted for loans such as phone contracts, cars on finance, and particularly, the likes of mortgages.

Here are what two of the most common credit reference agencies define as a bad credit score:

Experian: Experian consider anything between 561-720 as poor, and state: "You might be accepted for credit cards, loans and mortgages but they may have higher interest rates." They consider 0-561 as very poor and suggest "You're more likely to be rejected for most credit cards, loans and mortgages that are available."

Equifax: Equifax consider anything between 280-379 as poor with a chance of being approved but likely with high interest rates and low limits, and class 0-279 as very poor in which you will likely be rejected.

What affects your credit score?

Your credit score can be affected by many things, so we asked our experts for their take on the matter.

One thing in particular that you may not expect, is something Becky highlights for us here: "You may think that if you have never borrowed before that this would look good, but this isn't actually the case. What it actually means, is that there is no good evidence that you will be able to pay back what you borrow well and so it will sometimes count against you."

We spoke to Richard about the common things that he sees affecting credit score every day, and as he explains, there are many factors at play. Below, he tells us what is most likely to affect your credit score:

  • Signing up to the electoral role – this is easy to do and lets lenders know you have a permanent address.
  • Making too many credit applications over a short period of time – this can harm your credit score even if you don't go through with the loan.
  • Putting your name on household bills – if you live in a house with other people, put your name on bills such as your gas/electric or TV package. It doesn't negatively affect your credit file not to, but doing so works in your favour and could help you have a higher credit score.
  • Paying your bills on time – this is vitally important, so make sure your payment dates work in conjunction with your pay day. Even paying late by a few days each month can lead to a poorer score.

Pauline further echoes this final statement, flagging missed and late payments (of any kind) as a main factor that will affect your credit score: "You should think of your score as a report card on your financial behaviour. Not fulfilling your financial obligations is the worst thing you can do to your credit score."

Ultimately, a good credit score can differ between different credit reference agencies, but that doesn't mean you can't be in control. By asking for your credit score from the common credit reference agencies – and knowing what can positively and negatively affect your credit score – you can be sure that you always know where you stand.