When it comes to building a secure future for you and your family, there is no alternative to a good credit rating. A good credit rating on your file equals outstanding creditworthiness and financial aid availability. Therefore, you must understand how it works and where you stand to get a good credit rating.

Unlike in the past, when financial institutions had access to a small amount of information on your ability as a borrower, nowadays, financial companies have a more accurate picture of your financial condition. As a result, it is all the easier to acquire good credit on fair terms than before.

Getting a good credit rating is about understanding the process and slowly working your way up to it. So, without further ado, let's dive into the nitty-gritty of it

What Is a Credit Score?

Your credit score is a measurement of your creditworthiness based on your financial history and ability to repay your loan. It determines how risky it is for financial institutions and banks to invest in you. A credit score plays a major part in determining if you will be approved for a loan.

In brief, your credit score represents all the information on your credit report in a single number. Information that is stored by credit card companies, banks, telecommunication providers, utility companies, public records, etc., is all included in your credit score.

Who Controls Your Credit Score

As for now, three major companies are providing credit scores in Australia. The largest and most prominent among these is Equifax, formerly known as Veda. Experian and Illion are the other two.

A Breakdown of Credit Score Ranges

Your credit score will be between 0 and 1200 or 0 and 1000, depending on the credit reporting body. The score is measured on a five-point scale: low, fair, average, very good, and Excellent. However, for demonstration purposes, we'll include another perfect scale.

Here's a complete breakdown of the credit score ranges using Illion.

Perfect Score (Credit Score 1000)

To be a member of this exclusive club consisting of only 3.5% of all Australians, you'll need to score 1000 out of 1000. However, you will likely grow into an older man before achieving this score. To score this high, you'll need to build a lifetime of positive credit actions like carefully limiting your lines of credit, deliberate applications, and timely payments.

Nevertheless, if you achieve such a high score, you'll have no trouble taking out a loan. Moreover, you’ll likely get a lower interest rate and a better loan term than most applicants.

Excellent Score (Credit Score 800-999)

A credit score above 800 is also very lucrative as it doubles down on reliability. Banks and lenders would find it less risky to offer you credit with tempting rates and flexible loan terms. However, you'd still need to show them that it's well within your ability to repay the debt.

Very Good (Credit Score 700-799)

Getting a loan with a score in this range should be normal as long as you can pay back your debt. That said, you're likely to get a different interest rate and loan

term than someone with an excellent score. However, you'd still get a decent interest rate and a loan term.

Average (Credit Score 500-699)

An average score is still pretty decent as long as you haven't gone through any major credit difficulties, such as bankruptcy or default. Late payments and many credit applications are the chief reasons your score gets lowered to the "average" range.

Fair (Credit Score 300-499)

If your credit score falls within this range, you've got a below-average score. Be that as it may, it also means you don't have any major negative issues in your reports, like bankruptcy or multiple defaults. Even so, you're more likely to get rejected by most banks or lenders.

Most Australians within this range are on the younger side. As the banks and lenders consider the young borrowers riskier, their credit scores tend to be lower.

Low (Credit Score 0-299)

This is the lowest range of credit scores you can reach. If you have a credit score between 0 and 299, it's most likely because you've multiple defaults or other negative listings on your credit history. However, consistently paying your bills late can also cause your credit score to plunge this low.

If your credit score is within this range, you'll be in a group considered the riskiest to lend and would most likely get rejected. So, you're better off working on your credit score before applying for financial aid.

How Is Credit Score Measured?

Your credit score is determined after considering various factors related to your credit history. All these factors are duly summarised in your credit file.

Here're a few usual factors when calculating your credit score.

1. A history of all the money you've ever borrowed.
2. A general estimate of your capacity to make timely payments.
3. All your repayment history for all the loans you have taken out.
4. All defaults, bankruptcies, and court judgments remain in your name.

FAQs on Good Credit Rating

How often does my credit score change?

Your credit score changes depending on how often your credit report is updated. Usually, your credit report is frequently updated.

Does opening a credit card hurt my credit score?

No, it usually doesn't hurt your credit score if you open a credit card. However, making multiple applications quickly will certainly hurt your credit score.

What is a bad credit score?

A credit score between 0 and 500 is considered bad by most banks and lenders.

The Bottom Line

When you're shooting for a good credit score, sincerity and perseverance can go a long way. However, even with the right attitude, it's normal to lose your way and make a mistake if you need to know what you're dealing with. That's why it's crucial to know what exactly is a good credit rating before you go after it.

Hopefully, all this information on good credit ratings will help you understand what it is and how it works.