Credit scores. We all have one – even if we’ve never checked it. But why should we care? Well, your credit score can have a big impact on whether you can or can’t borrow money. To get you up to speed, here’s why you need a good credit score.
What actually is a credit score?
So, what even is it? Well, your credit score is a rating indicating to lenders how reliable you are when it comes to borrowing money. It summarises your credit history: ergo, how you borrow in the past can affect what you can borrow in the future.
For instance, say if you’ve never borrowed any money before. As such, you’re likely to have a low credit score: that’s because lenders can’t tell how likely it is you’ll pay the money back. Similarly if you’ve missed a few repayments in the past, it suggests that you might do it again in the future. On the flip side, if you’ve got a strong history of making credit payments on time, it’s likely you’ll have a good credit score.
What affects my credit score?
Your history of borrowing in the past influences your credit score. This could be in the form of a loan, credit card or mortgage, or it might be a service you have on credit, such as a monthly mobile phone or internet contract.
Your credit score is also influenced by your credit utilisation. Credit utilisation, in short, is how much of your available credit limit you use each month. Most credit referencing agencies (the companies that generate your credit score) advise that you only use 30% of your monthly available credit limit.
Other things that can give your credit score a boost include being registered to vote, not having too many hard searches on your credit report in a short space of time and removing any errors from your report.
Why do I need a good credit score?
A good credit score not only affects if you’ll be able to take out loans, credit cards and mortgages. But it also affects the APR a lender will offer you. This means that if you want to borrow money to make a few home improvements or buy a new car, a good credit score can get you a loan offer with a lower APR. That in turn means you’ll pay less interest and are likely to have lower monthly repayments. You’ll also have more lenders to choose from when picking which offer is right for you.
Even if you don’t think you’ll ever need to borrow money, actively trying to keep a healthy score is critical. That’s because it will ensure you’ll never be denied access to credit in the future if you need it.
What can I do if my credit score isn’t great?
Don’t worry, we’ve all had to start somewhere. Whether it’s because you have a thin credit file (i.e. never borrowed money in the past) or you haven’t got a perfect record of making repayments, there are things you can do.
- Check for and remove any errors on your credit report.
- Register to vote.
- Use a credit builder card little and often and repay it in full each month.
- Keep your credit utilisation below 30%.
- Avoid too many hard searches at once.
- Make monthly repayments on time.
Although you might not see a significant impact straight away, over time your credit score will start to improve.
If you need to borrow now and don’t have time to work on improving your credit score, you can access your Fusion Score for free in myfreedom. You Fusion Score combines your credit history with your financial data. As a result, it helps you prove that you can afford to take out finance. When you use it to check your eligibility, our lenders can use it to offer you a better rate. Or they can even find you an offer that would have otherwise been unavailable to you.