What is a credit score?

Credit scores are so important as they can impact your financial future. Read on to learn all about them.

It’s really important you understand what credit scores are as they play a major role in not only deciding if you can get a loan, but what rate you might qualify for. Read on for our comprehensive guide on the important things you need to know about your credit score.

What is a credit score?

There are several credit reporting agencies but here are the 3 most commonly used ones:

Equifax

Experian

illion

Below we will explore some of the factors these credit agencies use when providing a credit score.

How do they calculate my credit score?

The exact formula is not disclosed by these credit reporting agencies and they can vary from agency to agency. There are however several key factors that they consider:

The amount of money you’ve borrowed.

Credit limits, who lent you money and whether these loans are open or closed are considered.

The type of credit you’ve applied for.

Mortgages, credit cards, personal loans and store finance can carry different levels of risk and therefore impact your credit score in different ways. Buy now pay later schemes can also negatively impact your credit score.

The number of credit applications you have made.

All past applications for credit are considered in your score. You can actually hurt your credit rating if you apply for a loan with lots of different lenders (particularly if you do this within a short period of time). This is because an application to a lender will often trigger what’s called a hard credit check. Hard credit checks are a formal credit inquiry and therefore impact your credit score.

If you want to find out what interest rate you can get for your loan simply apply with us and we’ll check for you without impacting your credit score.

Your repayment history.

Whether you have paid on time, had accounts in arrears or defaulted can impact your credit score. This is not just your repayment history of loans. Your repayment history on things like gas, electricity, phone and internet can also impact your credit score.

Your personal details

Credit agencies take into account your personal circumstances such as age, as well as ‘stability factors’ such as how long you’ve been employed in your current position and how long you have lived at your current address.

Defaults, Bankruptcy, debt collection agencies and short-term credit

These can clearly negatively impact your credit score as can open accounts with debt collection agencies and short term credit like pay day lenders.

What is a good credit score?

Credit reporting agencies provide a score between 0 and 1,000 or 0 and 1,200.

Here are some approximate ranges to give you a guide on what is a good score for the key providers:

Equifax:

Excellent: 841 – 1,200

Very Good: 756 – 840

Good: 666 – 755

Average: 506 – 665

Below average: 0 – 505

Experian:

Excellent: 800 – 1,000

Very Good: 700 – 799

Good: 625 – 699

Fair: 550 – 624

Below average: 0 – 549

How can i find out my credit score?

You have a right to get your credit score for free every 3 months. It’s definitely worth finding out what your credit score is regularly.

Follow these links to find out your credit score (free):

Equifax: Call 138 332 or go to their website.

Experian: Call 1300 783 684 or go to their website.

illion: Call 132 333 or go to their website.

Can my credit score change?

Yes. Your credit score is a dynamic number that can change depending on the factors we listed above.

How do I improve my credit score?

Great question! We have written an article titled “How to improve your credit score”. We think you’ll find it really helpful.

Does checking my credit score hurt my rating?

No. If you use one of the services above it won’t hurt your score. Importantly, at LendLab we do not do an upfront credit check when assessing your loan application. We do what’s called a soft credit check. Soft credit checks are not a credit application. This means they do not come up as a credit inquiry and therefore do not hurt your credit score. So if you need a loan it’s best to use our free service to find a great rate from our panel of over 20 lenders and avoid hurting your credit score.

The LendLab difference: