We often hear from financial experts that we should improve our credit score because it puts us in good stead with the credit providers – and it really does. When you have a good credit score, you’ll be in a favourable position to borrow, and you stand a good chance of paying lower interest rates.
But is it worth striving for an excellent credit score?
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What rates as an excellent credit score?
Credit bureaus have different definitions of an excellent credit score. To Experian, a score between 781 and 850 is excellent. According to TransUnion, the range is 767-999, while With VeriCred, 901-1000 is the coveted bracket.
What are the advantages of an excellent credit score?
An excellent credit score can help you borrow a higher amount, which can be especially useful for home loans, to achieve lower interest rates, and improve your overall approval rates. This owes to the level of trust given to excellent borrowers. These consumers honour their credit arrangements, they pay on time, and their debt-to-income ratio is low. A good credit score is great, but an excellent credit score is better yet.
What you should be aiming for?
According to Experian, striving for an excellent credit score shouldn’t be a goal, but rather a result of constructive and responsible credit use.
“An excellent credit score can take a while to build. It’s also sensitive to many different factors and can fluctuate,” says Experian.
“If consumers use credit responsibly, take out the right kinds of credit, and pay their full instalments on time over a period, a good or even excellent credit score may follow.”
Be responsible
Even when your credit score is excellent, you still need to be responsible, Experian cautions. You need to keep in mind the reasons for applying for credit. For example, is it for a house, or for a luxury item? You should not be tempted to take out too much credit just because you have an excellent score.
Because of the way credit scores are calculated, Experian says, and the many factors that influence a score, it’s difficult to determine the impact of a singular event. However, missing payments, especially for three months or more, is the surest way to damage any credit score, excellent or otherwise. Therefore, you need to be as careful as someone who is trying to improve their credit score.
How can you maintain an excellent credit score?
Apart from good payment behaviour, Experian says that to keep a high credit score you should control the following:
- The total amount of credit you have (i.e. the total amount across all accounts and loans): Too much credit, especially if it is maxed out, can affect your chances of getting further credit.
- The amount of credit you spend: Using a high percentage of the credit offered to you, especially on many accounts, can start to impact your score.
- The type of credit you have (e.g. retail cards, vehicle loans, personal loans): All types of credit have the potential to build or damage your credit report and score. That said, there are certain types of credit that are seen as "good". This includes home loans and manageable vehicle finance, as these improve your financial status. While retail cards, small loans or credit cards can be useful, having too many can affect your score, especially if you don’t pay one or more of them.
Learn how to improve and maintain your credit score by visiting this page.