The grade or condition of a banknote is a matter of opinion more than an exact science. There are guidelines that are presently used, which have been found to be satisfactory, however as is often the case, there is more than one standard guideline.
One system works on points in grading, starting with 100 for an uncirculated banknote, then deducts 5 points for a crease to a tear etc. The problem is that the position of a dirt stain can make a lot of difference to the value of a banknote. If it is one the obverse side of the banknote for example in the middle of the banknote, this will affect the value dramatically, rather than if in the corner of the banknote.
The most popular system of banknote grading in Australia is one adopted by the British Museum. This grading system starts with Poor which simply means the banknote is severely damaged. The next grade is good, this in actual fact a contradiction of terms, as it actually means the banknote is "bad". Such banknotes are badly damaged; however they qualify as "good" because the printed design is complete. Then comes Very Good, again a misconception, it simply means the banknote is not quite as bad as good.
These first three grades should be avoided by the investor, unless extremely rare banknotes.
A good guide for the investor is to avoid all banknotes under the grade of Fine, which is the next grade. Grades of Fine and above have many things in common, they are appealing, with no severe damage to spoil the look of the banknote.
A banknote that qualifies as Fine will show substantial evidence of circulation, creases, folds and stains-the combined effect of these faults should not detract from the overall appearance of the banknote.
A banknotes that qualifies as Very Fine would be satisfactory to the majority of investors. In this grade the banknote will show obvious signs of circulation, multiple folds etc, is otherwise undamaged and appealing.
A banknote that qualifies as Extra Fine should be, there are some signs of circulation, with up to possibly 6 folds or a heavy centrefold, crease marks etc. It should have a near uncirculated look, have crispness to the touch, and otherwise be undamaged.
A banknote that qualifies as Uncirculated, means simply a perfect banknote in every way, there will be no blemishes, folds, flicks or any use of any kind, "let your eyes be your guide", in any fault whatsoever is seen ,the banknote is not Uncirculated.
Australian catalogues offer detailed definitions of the grading terms they use, and their interpretations. The investor is always advised to study both the catalogue and dealer's sales catalogues carefully.
It will become obvious that personal judgements are never the same, with a number of dealers (however many, may be in the minority) will buy a Very Fine banknote, and upgrade the banknote to an Extra Fine when selling the same banknote. This confusion arises where half grades to describe a banknote, examples being a Very Fine can either be a Good Very Fine+ or near Very Fine. There is nothing wrong with this grading system, if the investor is aware to treat the purchase as a Very Fine, Extra Fine for the purpose of purchase. If the investor decides the banknote is a Very Fine+, with the dealer asking a little more for the banknote, it is a good bargaining point.