What is excellent credit?

 

The term ‘excellent credit’ refers to people who have the highest credit scores, as measured by UK credit reference agencies. However, the term and its meaning is not as clear cut as one might think.

Unlike the situation in a number of other countries with developed credit markets, there is no universal credit rating system in the UK. Three different credit reference agencies (Callcredit, Equifax, Experian) all vie for the business of lenders, who must legally check an applicants’ suitability for credit before offering it to them.

Each of these three reference agencies have developed their own system for credit scoring, which gives each UK individual a number which represents their credit worthiness (when they request their credit report). However, each of these systems is different. They each use different data sets, and even directly comparable data is often weighted differently by each credit score algorithm– so people can (and do) have vastly different credit scores, depending on the agency who has provided it. Furthermore, each lender uses different data in different weightings to assess creditworthiness, so these scores can be a very poor guide for people when applying for credit.

Indeed, some question the validity of the credit reference agencies’ customer facing business operations, given that they score individuals in a particular manner, then sell the same individuals the tools needed to improve their own arbitrary score- which they can change instantly.

Which behaviours tend to deliver an excellent credit score?

Instead of looking at the different credit reference agencies and the scores they assign people, it is perhaps wiser to look at the circumstances and behaviours displayed by people who are generally deemed to have excellent credit, and why lenders might find them an attractive prospect.

Good credit history

Having a good credit history is something that is very desirable to lenders. By ‘good credit history’, we mean people who have used credit in the past and demonstrated that they can pay it back responsibly.

Of equal value (if not greater) is a long credit history. People who have managed their credit card proficiently for a year or so have done the right thing, but they have not been able to demonstrate their approach to credit over an entire economic cycle. What they might do during the lean years, as well as the good. People with a long credit history, can demonstrate an ongoing behaviour, which means lenders can feel more certain that they will maintain their behaviour.

High disposable income

People who have high disposable income are also more likely to spend on their cards, which is good for credit card issuers since they make money from interchange with every credit card transaction.

Home Owners

Home-owners are often more motivated to make repayments, because although credit cards are unsecured debt products, debts can still be pursued though the courts and assets (homes) sold to recovers loses. Having a house which can be repossessed is a more attractive target than most other assets.

Which credit cards are best for people with excellent credit?

People with excellent credit can often take their pick of the best products available. They tend to get the best rates of interest, the highest credit limits and the longest introductory periods, so picking the best credit card for an individual with excellent credit is mostly about finding a card that improves their quality of life. It is therefore as much a personal decision as it is a financial one. All credit cards offer people using them better protection than they would get if they purchased using cash or even a debit card, so there is good reason for using one – the question is which one?

Below are a number of categories that might appeal to people with excellent credit, but in reality all credit cards (other than those designed for people with poor credit, which have prohibitively high interest rates) could be considered, depending on the interests and lifestyle of the individual in question.

Reward Credit Cards

Reward credit cards come with a number of different features, but all reward cards are designed to reward spend on the card. Some offer supermarket reward points, some offer frequent flyer miles, others offer hotel discounts, but there are many cards and many different perks available – all of which can be very advantageous to people who clear their balance every month.

Charge Cards

Charge cards are different to other credit card products, because they require their holder to pay their balance in full every month. There is no opportunity to ‘roll’ their balance on to the next month, by paying the minimum charge, as can be done with ‘revolving’ credit products, like credit cards. However, the rewards available from charge card products are traditionally far richer than they are with traditional credit card rewards. They enable their users to acquire rewards more quickly than they might elsewhere, although their users do forfeit some flexibility for this.

Balance Transfers

In some respects balance transfers are less applicable to people with high disposable income, than they are for others. However, balance transfers remain one of the best routes to inexpensive debt, and many people use them to free other capital so that they can use their money more flexibly.