You’re likely to hear how it’s important to have a “good” credit score. But how do you get one? And — most importantly — why do you need a good one?
You are not alone
You are not alone
Many of us do not have a clear picture of our credit score, but understanding it puts you in control. Your credit can shape real life opportunities, sometimes sooner than you expect. If your newly purchased car breaks down and you need a short term loan, or you are applying for a credit card or a mortgage, your credit score matters. A strong, healthy score can expand your options, improve your approval odds and help you secure better rates.
Back to basics
What are credit scores?
Broadly speaking, a credit score is a number that depicts a consumer’s creditworthiness. Credit Karma uses the credit reference agency TransUnion, which scores out of 710. Other providers have different scoring ranges — Experian is up to 999 and Equifax is 1000 — so a direct comparison of scores doesn’t really tell you much. A credit score is based on your credit history, such as how quickly you repay debt, how high any debts might be or how much you have borrowed. As lenders use credit scores to decide whether someone is likely to pay back money in a timely manner, our financial lives may depend on them.
How your credit score is determined by TransUnion
As mentioned, at Credit Karma, we use TransUnion’s credit score, which has a maximum score of 710. Typically, the higher your score, the more likely you are to qualify for a loan with more favourable terms, such as lower interest rates, higher amounts and potentially lower fees.
- Scores 565 and below are considered Needs Work
- Scores between 566 and 603 are considered Fair
- Scores between 604 and 627 are considered Good
- Scores 628 and above are considered Excellent
Other providers may use different reference agencies and other parameters, but ultimately all scores are based on information in your credit reports. Our Help Centre has some great guidance for understanding this.
What impacts your credit scores?
Your credit scores can be affected by a number of factors. For example, if you have built up a long-standing history of on-time payments, that suggests you have a positive longstanding relationship with lenders.
However, if you have a poor on-time payment history with several missed payments or even a default, this could suggest you may have trouble paying back a future loan and it is therefore a red flag to credit card providers, lenders and even utility suppliers.
Aside from increasing interest or incurring late fees, you may find that credit reference agencies are notified and your credit reports are impacted. Even moving house several times can have a negative effect. Why not take a look at our key factors page for more detailed information?
How to get a good credit score
So now that we know what a credit score is, how do we go about getting a good one? A good place to start is by paying bills on time – the sooner you pay, the better.
If you’re struggling to pay, get in touch with your lender and arrange a repayment plan or even a payment holiday.
Other things to consider include whether your credit rating could be linked to another person, such as a spouse or a friend through a joint account. Their poor record may be bringing you down.
You can also check for mistakes on your file or fraudulent activity, which are not your fault. Finally, take a look at 6 easy ways to improve your credit scores for more great tips.
Bottom line
The good news is that no matter your age or history you can always work to improve your credit score, and there’s no better time to start. And wherever you’re starting from, improving your credit health can improve your overall financial well-being. As always, staying on top of the information in your credit report is the first step toward progress.