If you’re new to credit, you may not know the benefits of having a good credit score yet. And lack of credit history may even leave you with a bad credit score yourself. Credit insights help you understand where you currently are on the credit scale but what are the advantages of improving your score? We know credit is a good thing but why? The guide below looks at how you can raise your credit score but also how it can influence your financial life.
Why is a credit score?
A credit score is a financial tool used to show how good you are at managing your loans or credit. It can be used by car finance providers, mortgage lenders, credit card companies, and even mobile phone contract providers to decide if you’re worthy of credit and on which terms. Credit and finance providers may use a credit check when you apply for finance, this enables them to get access to your credit report and based on your previously history of borrowing, they can determine if they want to offer you finance or not. Every person in the UK has a credit score and your credit report lists some key information about you. It contains information such as your personal details, living address, payment history, loans and credit information and the applications you’ve made for credit.
How do you get good credit?
Credit scores can range from ‘poor’ through to ‘excellent’ and being on the higher end of the credit scale is always better. There are a number of factors that can help boost your credit score and you should consider the below.
Make payments on time. Any form of finance mortgage, credit card, loan needs to be paid on time and in full. It's really important you keep on top of your credit payments to boost your credit scored. Missed or late repayments can stay on your credit file for up to six years and have a negative impact on your credit.
Only use credit little and often. Having credit isn't a bad thing but using up lots of your credit is. Think about staying well below 30% of any credit limit at once. So, if you have a credit card with a limit of £1,000, you should only use around £300 of the limit at once and work to pay it off as quickly as possible. Using small amounts of credit often can help to raise your credit score.
Build a credit history. Like we’ve mentioned above, having little or no credit history can actually leave you with a bad credit score. Building a credit history and handling all your financial commitments correctly can help to boost your score and show future lenders you can be trusted to pay back your loans.
Why is a good credit score better?
Your credit score can influence many aspects of your financial life. A better credit score can give you access to lower interest rates, higher credit limits and see easier acceptances.
- It’s easier to get accepted. Finance lenders prefer applicants who have better credit scores. Based on their previous history of borrowing, they are less of a risk to lend to and are unlikely to default on their loans.
- Higher credit limits. People with better credit scores can get access to the highest credit limits on things like credit cards and store cards.
- Lower interest rates. Interest rates can reflect the cost of borrowing money from a lender. Being offered a lower interest rate can help to make your finance deal cheaper. Lenders can set the interest rate accordingly to the risk, so the lower the risk, the lower the interest rate offered.
- More choice. Having a better credit score can give you more options when it comes to loans. You may receive multiple offers from different lenders, so it gives you more negotiation power to get the best deal possible.
