If you’ve recently checked out your credit score and discovered you have a good rating, it’s reassuring to know that it can show lenders you have a positive track record of meeting your financial obligations. Having a good credit score can be a great advantage, helping to boost an application for a credit card or loan, for instance. This guide will run you through what a ‘good’ credit score is, what you can do with it and steps you can take to improve your score.
What is a good credit score?
In Australia, your credit score is usually on a scale between 0 and 1,200 or between 0 and 1,000 depending on the credit reporting agency you use to check your credit score. Equifax (formerly known as Veda) determines a ‘good’ credit score to be between 622 – 725.
Here’s how Equifax determines whether your credit score is ‘excellent’, ‘very good’, ‘good’, ‘average’ or ‘below average’:
|Credit-worthiness||Excellent||Very Good||Good||Average||Below Average|
|Score||833 – 1,200||726 – 832||622 – 725||510 – 621||0 – 509|
|Source: Equifax.com.au (formerly Veda)|
What can I do with a good credit score?
Having a good credit score could open you up to a range of benefits. Here are a few things you could possibly do with a good credit score:
- Have more negotiating power: with a good credit score you may find you have more power to negotiate a better interest rate on your home loan or credit card than you would if you had a poorer credit score. If your score isn’t so good, lenders may be less likely to be flexible on loan terms.
- Have more borrowing capacity: banks and lenders may be more willing to let you borrow more money with a good credit score because you have demonstrated you can pay it back on time. While it may be useful to be offered higher borrowing amounts, it’s important to consider if that is in your financial capacity to repay and not at the detriment of any future savings goals or your retirement.
- More chance of getting credit card or loan approval: while lenders take a number of factors into consideration before approving a credit card or loan application, having a good credit score can work in your favour because it shows your positive borrowing history. Having a good credit score doesn’t necessarily guarantee loan approval though.
- Access to lower interest rates: having a good credit score could enable you up to qualify for better interest rates when you borrow money, possibly leaving more money in your pocket for living expenses and repaying the balance on a loan or credit card.
How can I improve my credit score?
There’s always room to improve when it comes to your credit score. Here are a few things that could help improve your credit rating:
- Paying bills on time: it’s an obvious but important tip – paying all of your bills on or before the due date creates a consistent record of payments and may help to improve your credit score.
- Not applying for new credit: applying for new credit cards or loans unsuccessfully may see your credit score drop.
- Diversify your credit: diversifying your credit can demonstrate an ability to handle different types of credit at the same time, which could be good for your credit score. For example, a mortgage, car loan and credit card would be an example of diversified credit if you can meet the repayments on all three types of credit. While this may be useful to improve your credit score, it is not a good idea to take on more debt than you need.
- Keep your credit card balance low: A consistently low balance may be better for your credit score than a higher one. If you’re struggling with spending too much, then our wrap up of 70 ways to save money could be useful.
For more ideas about how to improve your credit rating, see more tips here.