Credit scores play a pretty significant role in the financial world and have a major influence when you’re trying to
- Get a loan approved
- Receive decent interest rates
- Secure a rental agreement
- Buy a home
This is a numerical representation of your creditworthiness, essentially letting lenders know how risky it would be to lend you money. As such, it’s crucial to have a solid understanding of what constitutes a “good” credit score in order to make more informed financial decisions.
Defining Credit Score
Credit scores are numerical ratings that essentially reflect how financially responsible you’ve been over the years, and it’s usually calculated by using factors like:
- Payment history
- Outstanding debt
- Length of credit history
- Types of credit accounts held
Then, lenders, including banks and credit card companies, will use this score to assess the likelihood of you actually repaying their loans. These scores range from around 300 to 850, but the specific range and definition of a “good” score tend to vary from country to country, so we’ll go through some specific examples shortly.
Basically, the higher your number on this scale, the less risky you are to lenders.
Importance of Credit Scores in Home Buying
Purchasing your first home is a major financial milestone, and when it’s time to apply for a mortgage, that little number on your credit score is either going to open or close doors.
Mortgage lenders need to know how reliable you are as a borrower when lending you money, so they’ll use your credit score to assess not only your eligibility for a loan but also the interest rate they’ll offer you.
Higher credit scores, since they suggest that you can handle money responsibly, often lead to lower interest rates – this can end up saving you tens of thousands of pounds over the life of your mortgage. The inverse here is that low credit scores result in higher interest rates, possibly even preventing you from getting a loan at all.
Your credit score is a key factor in determining how much buying power you’ve actually got when you’re looking to purchase a property.
International Credit Score Ranges
Every country’s got their own credit scoring system, so let’s break down some of the ranges and benchmarks for a few different major countries:
UK: Credit Scores Range Between 0-999 (Experian)
In the UK, one of these three credit reference agencies measure your credit score:
- Experian
- Equifax
- TransUnion
Experian is one of the most commonly used agencies and has a scale between 0 and 999. They classify a good credit score to be 721 or higher, so that means if you’ve got a score within this range, you’re more than likely to be offered favourable terms on loans and mortgages.
US: Credit Scores Range Between 300-850 (FICO)
The US is different as they’ve got the ‘FICO’ model, which ranges from 300 to 850 – good scores are 670 and higher, and excellent scores start at around 740. The same general rule applies, though – good or excellent credit scores generally mean you’ll be getting much better interest rates or loan terms.
Australia: Credit Scores Range Between 0-1,200 (Equifax)
Australia mostly uses Equifax to calculate credit scores, but they’ve got the widest range out of either country we’ve mentioned so far, between 0 and 1,200. Good credit scores generally start around the 622 mark, so if you’ve got this score or higher, you shouldn’t have any bother securing a loan or negotiating better terms.
Other Countries
Still, not every country uses the same scales for measuring creditworthiness, which we can even see between the UK, the US, and Australia since they all have different ranges.
In Spain and a range of other European countries – Portugal, France, Italy, Greece – for instance, the lenders tend to focus more on repayment history rather than things like credit utilisation.
This means that while it’s still important to pay your debts on time everywhere, the way your credit score is calculated is always going to vary slightly depending on where you live. That’s where our Finance Passport comes in handy since it helps smooth over some of these differences and lets lenders assess your credit score more uniformly across borders – thus improving your chances of securing a mortgage in a range of different countries.
How to Improve Your Credit Score
If your credit score isn’t exactly where you’d like it to be, the good news is that there are actually a handful of different ways you can improve it:
1. Pay Bills on Time
Your payment history is one of the most influential factors for calculating your credit score – whether you’ve missed the payment entirely or it’s merely just a bit late, it’ll cause your score to drop. As such, it’s in your best interest that you’re paying the following on or before their due dates:
- Credit cards
- Loan payments
- Utilities
2. Reduce Credit Card Balances
‘Credit utilisation’ is another important term regarding credit scores, and it refers to the ratio of your current credit card debt to your credit limits. The general rule of thumb here is to never let your credit utilisation be higher than 30% – only using £3,000 if you have a credit limit of £10,000, for instance.
This might sound a bit strange, considering you’ve been given a limit of x amount, but the way lenders see it is that you’re overly reliant on credit to fund your expenses.
3. Avoid New Credit Inquiries
One of two inquiries might not make much of a difference, but if you’re incessantly checking your credit score in a short time period, it might suggest that you’re in financial trouble or that you’re trying to borrow beyond your means – that’s a big red flag for lenders.
4. Monitor Your Credit Report Regularly
From incorrect payment statuses to unrecognised accounts, errors on your credit report can negatively impact your score, so ensure that you check your credit report every now and then in case there are discrepancies that you need to dispute.
Conclusion
Generally speaking, the specific criteria for what makes a good score are always going to change depending on which country you’re in, but the fundamental principles of how you keep a healthy credit score almost always stay the same – from paying your bills on time to reducing debt.
So, don’t give yourself any trouble when it’s time to secure a mortgage or loan and keep a good credit score!
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Whether you’re looking to buy a property in the UK, US, Australia, or Canada, Upscore’s Finance Passport can help you secure the best mortgage deals across borders. Check your credit score today and start your journey with Upscore!
