Every adult has a credit score – but not everyone understands what it is, how it affects us, or how to improve it. Here, we talk you through a simple guide to get to grips with credit scores and what your credit score may mean for your financial situation.
A credit score is ultimately a history of your past financial transactions – it will tell someone what loans or credit cards you have had in the past, whether you have missed any payments, or whether you have been declared bankrupt. It is a very important document, which you can access yourself online, that lenders or banks will want to see when they review a credit application from you. Many catalogues and retail outlets may also run your credit score before approving an account with them. You are usually told when someone will be checking your credit score. It gives them a good understanding of who you are and whether you are responsible with money. Essentially, it is the gateway to getting your next loan or credit product approved.
If you have a low credit score, it may mean you have made financial mistakes in the past. You may therefore be worried about the effects of a bad credit score. Wonga released a useful guide on low credit scores, saying:
“If you have a low credit score, you may face restrictions on the condition of your loan, such as total loan amount, interest rate and repayment timeframes. Sometimes, you may even be declined when applying for credit. If you have a low credit score, your options may be limited, but doesn’t mean you can’t necessarily qualify…In some cases, you may have to provide more information about your ability to repay.”
The good news is that there ARE ways you can improve your credit score. Your credit score constantly changes as you go through life. Some things you can do to improve your score include:
- Paying bills on time
- Paying the full amount that is owed each month – this is very important
- Ensuring you can afford the minimum repayments on any future loans – don’t underestimate the responsibility of a new loan. Do you really need it?
- Trying not to use more than 30% of your existing credit facilities
- Removing any old names or associates from your account – Business Green state if you have a financial association listed on your credit report that is no longer valid, contact credit agencies to have this removed, as it can seriously bring down your credit score.
In time, usually around a year, you can reverse a bad credit score – although it may well be sooner than this if you adopt several positive financial habits right away. This means that with careful planning, you can eradicate your poor score and access the credit you need, whether this is a loan, credit card, catalogue store account or even a new bank account.