What is a Good Credit Score?

In the realm of personal finance, the term “credit score” often comes up, though many are unsure of its significance. Credit scores often serve as a crucial component in the decision-making process of potential lenders and creditors. While credit scores are not the sole determinants of your financial fate, they provide a general assessment of your suitability for a loan.

In this comprehensive guide, we explore the ranges of credit scores, shed light on a lender’s perspective, examine the factors that impact credit scores, and offer actionable strategies to cultivate responsible credit behaviour. By understanding the nuances of credit scores and proactively managing your financial health, you can unlock opportunities for better loan terms and financial well-being.

What is a credit score?

A credit score is a three-digit number ranging from 300 to 850. Credit scores are calculated using information in your credit report, including your payment history, the amount of debt you have, and the length of your credit history.

There are many different scoring models, and some use additional data in their calculations. Credit scores are used by potential lenders and creditors, such as banks, credit card companies, or car dealerships, as one factor when deciding whether to offer you credit, like a loan or credit card. It helps them determine how likely you are to pay back the money they lend.

 So what is a good credit score?

When it comes to credit scores, it’s important to understand that everyone’s financial and credit situation is unique, and there is no “magic number” that guarantees better loan rates and terms. However, credit scores can provide a general assessment of your creditworthiness.

Here are the typical credit score ranges:

• Fair Credit: Scores ranging from 580 to 669 are considered fair.
• Good Credit: Scores between 670 and 739 fall into the good credit range.
• Very Good Credit: Scores from 740 to 799 are categorized as very good credit.
• Excellent Credit: Scores of 800 and above are considered excellent.

Lenders tend to categorise borrowers based on their credit scores to assess risk and determine loan terms.

Here’s how lenders generally view borrowers based on credit scores:

• Acceptable or Lower-Risk Borrowers: Individuals with credit scores of 670 and above are seen as acceptable or lower-risk borrowers. They are more likely to qualify for favourable loan terms and credit opportunities.
• Subprime Borrowers: Those with credit scores ranging from 580 to 669 fall into the category of subprime borrowers. They may face challenges in qualifying for better loan terms due to their credit score, as lenders consider them to be at a higher risk compared to those with higher scores.
• Poor Credit Range: Borrowers with credit scores below 580 generally fall into the poor credit range. They may encounter difficulties in obtaining credit or qualifying for better loan terms, as lenders perceive them to be high-risk borrowers.

Different lenders have different criteria when it comes to granting credit, which may include information such as your income or other factors. That means the credit scores they accept may vary depending on that criteria.

Credit scores may differ between the three major credit bureaus (Equifax, Experian, and TransUnion) as not all creditors and lenders report to all three. Many creditors do report to all three, but you may have an account with a creditor that only reports to one, two, or none at all. In addition, there are many different scoring models available, and those scoring models may differ depending on the type of loan and lenders’ preference for certain criteria.

What Factors Impact Your Credit Score?

Here are some tried and true behaviours to keep top of mind as you begin to establish – or maintain – responsible credit behaviours:

1. Pay your bills on time, every time. This doesn’t just include credit cards – late or missed payments on other accounts, such as cell phones, may be reported to the credit bureaus, which may impact your credit scores. If you’re having trouble paying a bill, contact the lender immediately. Don’t skip payments, even if you’re disputing a bill.
2. Pay off your debts as quickly as you can. By reducing your overall debt load, you can improve your credit utilisation ratio, which is the amount of credit you’re using compared to your total available credit. A lower credit utilisation ratio can positively impact your credit score.
3. Keep your credit card balance well below the limit. A higher balance compared to your credit limit may impact your credit score. Aim to keep your credit utilisation ratio below 30% to maintain a good credit score.
4. Apply for credit sparingly. Applying for multiple credit accounts within a short time period may impact your credit score. Each application typically results in a hard inquiry on your credit report, which can temporarily lower your credit score. Only apply for credit when you truly need it and can responsibly manage additional credit accounts.
5. Check your credit reports regularly. Request a free copy of your credit report and check it to make sure your personal information is correct and there is no inaccurate or incomplete account information. You’re entitled to a free copy of your credit reports every 12 months from each of the three nationwide credit bureaus by visiting www.annualcreditreport.com. By requesting a copy from one every four months, you can keep an eye on your reports year-round. Remember: checking your own credit report or credit score won’t affect your credit scores.
6. Dispute inaccuracies. If you find information you believe is inaccurate or incomplete, contact the lender or creditor. You can also file a dispute with the credit bureau that furnished the report. At Equifax, you can create a myEquifax account to file a dispute. Visit our dispute page to learn other ways you can submit a dispute.

A good credit score is crucial for accessing favourable credit terms and opportunities. It represents your creditworthiness and the likelihood of paying back borrowed money. By understanding how credit scores are calculated and practicing responsible credit behaviours, you can work towards achieving and maintaining a good credit score, which opens up doors to better financial opportunities. Remember, building good credit takes time and discipline, but the effort is well worth it in the long run.

Mortgage Broker Geelong

As you prepare to take the leap into home ownership, it’s important to consult with a Mortgage Broker to understand your obligations.

The expertise and experience of our Geelong Mortgage Broker team at The Hrkac Group can help you with securing a home loan. If you need assistance or advice, please get in touch. To make an appointment to meet with one of our friendly Geelong Mortgage Brokers, contact us via email, or phone (03) 5224 2366.

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