For anyone – businesses or individuals – credit is an unavoidable part of life, and credit scores are a key basis for many financial systems.
Credit scores are mainly used by banks to work out whether they should lend to you, and what sort of interest rates, payment periods, and other terms they are happy offering you. It all comes down to risk – if you have a bad credit score then you are more likely to miss payments or default on your loan, credit card, or mortgage.
Why should I try and get a good score?
If you have a good credit score, your credit interest rates will be lower and you will have access to more financial products such as credit cards, loans, and mortgages – which means much lower costs for you over the long term, and much greater financial flexibility.
What’s more, credit scores may also used by landlords, utilities providers, and insurers to decide whether they wish to enter into a financial relationship with you. A better score means fewer hurdles and headaches when sorting these out or shopping around for a better deal.
It’s important to note, of course, that there are businesses that will lend to those with poor credit scores, but there are conditions. For instance, if you’re urgently looking for car finance but have a bad credit score, there will still be a chance for you to get accepted. However, you should be prepared that it may cost you more in the long run.
Some great ways to build your credit score
Lenders and credit references agencies create scores by analysing a range of records, including payment history, banking activity and more. Thankfully, there are plenty of ways to improve your score – here are three everyone should consider.
1 – Register to vote
The electoral roll is one of the first things credit agencies check when creating your score. If you’re not registered, you appear riskier, as the implication is that you are not living at your registered address, or even worse, might be actively trying to escape your financial commitments. Registering is easy – you can do so here.
2 – Pay on time
Whatever regular services you are obliged to pay – rent, water, electricity or otherwise – if you miss payments or debits bounce, this will show up on your credit score. As such, it’s crucial you pay these on time, even if you are paying them jointly, as missed payments will show up on every payee’s credit score.
3 – Get a credit card
If you feel you can trust yourself to use it responsibly and you are sure you will be able to meet the monthly repayments, applying for and regularly using a credit card can be a great way of building your score. Just ensure you pay it off on time every single month (via direct debit, for instance) so your rating isn’t negatively affected.
Improving your credit score isn’t too complicated a task, and by doing so, you can access much better terms and rates, saving you money in kind. Follow our three hacks and you can start improving your financial position today.