Credit Score Explained: The FactsApr 24, 2020
One crucial aspect of managing your finances is understanding your credit score. Nowadays, it not only impacts big financial agreements such as taking out a mortgage, but also smaller purchases be it a phone contract or car insurance. In this post, you will learn about what your credit score and report reveals about your finances, what factors impact your credit rating and why having a good credit score is so important.
What is a Credit Score
When you think about your Credit Score think of it as your ‘Financial CV’. The only difference is that the creditors- not you- put information about you on there. This information is updated regularly and kept for a maximum of 6 years. It will show creditors how responsible you are with your money. From this, they will decide whether to lend you money or not and at which rate of interest.
Who are these creditors?
Any service or products you purchase and use in advance of a payment being made is considered to be credit. For example, your mobile monthly contract, gas and electricity bill, direct debit, bank overdraft, credit cards, hire car purchases...you get the gist!
Factors which impact your credit rate and credit report
There are numerous factors which impact your credit rate and credit report. Let's look at the main ways to positively influence your score:
- Making sure you are registered on the electoral register.
- Paying bills on time.
- Keeping within the 30% of your credit utilisation.
- Checking the information on the report is correct and up to date.
- Understanding that the people you are linked with financially will influence your credit.
- Limiting the number of credit applications you make. Every time you apply for something (car insurance, contract phone, loan) it goes against your credit score.
Why is having a good credit score important?
Having a good credit score allows you to gain more access to offers on purchases, lower interest and access to borrowing more money. To show that you are responsible with your finances, you are encouraged by creditors to borrow money, take on debt and purchase products and services.
How not to build your credit rating!
While building credit is not the issue, it’s how people do it that becomes the problem. If you are not good at managing your day to day finances, taking on a credit card or overdraft to build your credit may not be such a wise choice. Instead, you could continue to pay your bills on time, learn how to budget and maintain a 30% credit utilisation on your existing credit.
It's a wrap
Credit is an important aspect of personal finance. This blog post will enable you to fully understand how the credit system works and to be responsible for building your credit score. We will talk about this more on the next blog which explains the sensible way to build credit. If you want to find out more about credit scores and reports you can stop by at any one of these credit expert companies: