What is a Credit Score and How Will it Affect You Borrowing Money?
A credit score is a number that represents your likelihood to pay credit back. Most credit scores go from 0-999, with 0 being least likely to pay credit back, and 999 being most likely. The higher the score, the greater the chance of you getting good credit deals. The reason we have credit scores is to help lenders such as banks or credit card companies. Your credit score shows them the level of risk that comes with lending to you. In order to calculate your score, they look at your previous credit history and then determine your score based on this.
Credit scores can affect many different aspects of your financial life. No longer are they simply used to determine whether you’re eligible for a loan. Credit scores can affect mobile phone contracts, monthly car insurance and more. This is why it’s essential to keep on top of your credit score and work on improving it. Primarily though, credit scores influence your chances of getting: property rental, car finance, loans, monthly insurance, mortgages, credit cards and monthly gas and electricity contracts.
Your credit score tells lenders how likely it is you will pay money back to the lender. If it looks like there’s a good chance you’ll repay what you’ve borrowed, then you’re more likely to get good deals and lower interest rates. The lower your score, the less likely it is you will even be able to get a loan, credit card or mortgage. If you have missed payments in the past, or owe money, then your score will be worse. The score helps calculate what kind of borrower you are and how likely it is that you will manage your repayments.
So, you’ve got a poor credit score? If you have a poor or low credit score, undertake a credit report. This report will tell you why you have a poor credit score. In order to try and improve your credit score, make sure you make all current repayments on time. Also, close any credit cards that are no longer in use. A large credit limit may be viewed negatively by lenders. Checking your credit score is important, as it can fluctuate. So make sure you know where you stand with yours.
Each lender will use slightly different criteria to establish whether you are suitable to lend to. Ensure you look around for the best deals to suit you and your credit history. This way you are more likely to be accepted.
You can learn more about Credit Scores in our ultimate guide to credit score.