Borrowing power vs credit scores

If you’re reading this, you might know a bit about credit scores or borrowing power, or maybe you don’t know much about either. That’s okay! We’re here to talk about the difference between the two and how one can affect the other. Sit tight and read on for the answers

What is borrowing power vs credit score?

Basically, borrowing power refers to how much money a creditor is willing to lend you, while your credit score is a reflection of your past debt payment history and creditworthiness. While these two factors are related, they’re not actually the same thing. So, what’s the difference between your borrowing power and your score?

Credit scores

Credit scores are a simple way of summarising your credit reports for you, including how you’ve managed any borrowed money in the past.

When you apply for credit — for example by getting a mortgage, a personal loan, or by taking out a credit card — the lender will do a hard check on your report. This basically just gives them an idea of whether or not you’re deemed as high risk, and how likely you are to pay them back.

It’s important to say that lenders don’t look at your credit score specifically. That’s just to give you a quick view of your report and how the lender could perceive your application. Instead, lenders check your more detailed credit report and will consider your affordability and your responsibility. Either way, you are more likely to be approved for a loan with a higher score than a lower one. You can find out more about the difference between credit reports and credit scores here

You also have more than one credit score. They’re calculated by the top three credit reference agencies (CRAs) in the UK: Experian, Equifax and TransUnion. And each one uses a different system to generate their scores. If you don’t know what your credit scores are, head over to 'Your credit score explained' to learn more.

Borrowing power

While your credit scores are specific to you — reflecting your credit history and how you manage your money over time — your borrowing power reflects more than your personal creditworthiness. It also takes changes in the credit marketplace into account. The score is between 1-10, with higher numbers being better than lower ones.

Borrowing power is connected to live market data. For example, when lenders take certain products off the market or make changes to their approval systems, they can alter their acceptance rate of credit applications based on factors such as age or salary. This means you’re more likely to see regular fluctuations in your borrowing power. 

Is it possible to have an “excellent” score for credit but a low one for your borrowing power? Unfortunately, the answer is yes.

Mainly, this is because borrowing power scores relate to things out of your control. But if your credit score is in good shape it will always help your chances. And that’s something you can control! 

What’s a good target credit score if you’ve never borrowed?

What if you have never borrowed before? Does this mean you have no score and can’t borrow money? No, not necessarily. 

If you’ve never taken out a loan or credit card, you may have a lower score as there’s no information to base it on. But there isn’t a magic number to try and get to if you’ve never borrowed money before

However, even if you don’t want to borrow money now, you can still start to building it up, ready for the future. A Loqbox membership can be a great place to start for increasing your credit limit and building a solid history.

Does borrowing money affect credit scores?

Yes, it does. Whenever you borrow money, lenders report your payment history to the CRAs, and that data is then used to calculate your score. 

How often you borrow and how well you repay can also either positively or negatively impact your credit score. But as long as you make payments in full and on time, borrowing can actually help to boost your number.

How much can I borrow with a 600, 700 or 800 credit score?

There’s actually no fixed rule on how much you can borrow for any particular score. But higher credit scores generally mean you can borrow higher sums. It’s also important to note that Experian, Equifax and TransUnion calculate their scores on different scales, so numbers can vary from one to the other. However, the below is a rough guide which can help you to understand your scores.

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How much can I borrow with a 600 credit score?

Looking at Experian, with a credit score of 600 or below, you’re generally considered to have “poor” credit. But if you’re looking at scores from Equifax or TransUnion, you’d be in the high end of “fair” or “good”. See what we mean about the different standards?

If the lender is using Experian though, don’t panic — you should still be able to borrow money, it’s just that your options might be more limited and you may get charged higher interest rates. 

Something to remember is that 999 is Experian’s maximum score, and typically your scores with all three agencies should be in the same relative range (i.e. all three fall close to the middle column on the chart above for scores around 600). So try not to get hung up on the exact figures if you can, but let’s look into the higher scores.

How much can I borrow with a 700 credit score?

Again with Experian, you’d unfortunately be in the “poor” category at 700 points. Equifax would classify you as “very good” and as TransUnion’s point system only goes up to 710, this would put you in the “excellent” bracket here (woohoo).

Moving into the “fair” to “good” range should mean you’re eligible for lots of loans, mortgages and credit cards, and the interest rates should be fairly standard. However, you might still be able to get better deals if you push that credit score up even more.

How much can I borrow with a 800 credit score?

Credit scores above 800 will often be seen as “fair” with Experian, but with Equifax, you’d be in the “very good” range — in fact with that score, the maximum category is only 11 points away. Congratulations! 

Focus more on the “poor”, “fair”, “good” bands rather than the points themselves.

As you try to improve your score and move up the scales for each agency, you should be able to get the best deals from most lenders. You should also be able to borrow more money at lower interest rates as you go. But be sure to keep an eye on your credit score regularly so you can keep it that way.

How to borrow money without affecting credit scores?

Generally speaking, whenever you borrow, it will go on your report and therefore, impact your score in some way. Although it doesn’t always have a negative impact. If you manage your loans properly and make payments on time and in full, you should see your score go up and you wouldn’t want to miss out on that.

However, if you really need to, there’s a few things you can do

• One is to borrow from friends or family if it’s an option. Although this won’t be reported to Experian, Equifax or TransUnion, it does mean it wouldn’t negatively or positively affect your score.
  
  
• 0% interest credit cards can allow you to borrow money without interest, at least for a time period. But they often charge a high interest rate after that promotional period ends, so keep an eye on your T&Cs.
  
  
• Some lenders also offer soft checks on your history which don’t affect your credit score. But be mindful of high interest rates, which could mean your borrowing costs far more than you originally planned it to