By A good credit score might help you qualify for lower interest rates on loans, credit cards, mobile phones, and mortgages. Discover how to improve yours.
Why is your credit score so crucial when borrowing?
A strong credit score indicates that you have previously managed credit well, such as by repaying a loan or credit card on time. This means you’re considerably more likely to qualify for the lowest interest rates and receive more offers.
Follow these steps to figure out what you need to do.
1. How lenders determine whether to lend to you.
In the United Kingdom, four credit reference organisations gather information on how successfully you handle credit and make payments, which is known as your credit report or file.
Your credit report includes a list of all of your credit accounts, such as credit cards, loans, and current accounts with overdrafts, as well as the amount you owe and how you repay it. If you apply to a bank or other lender, they will most likely run a credit check to determine how safe you are to lend to.
This check will often influence the interest rate you receive, the amount you can borrow, and whether or not you are accepted.
The most recent facts in your report will have the greatest impact because lenders are interested in your present status.
2. Can credit checks affect my credit score?
Lenders might perform two types of checks when you apply for credit: hard and soft.
- Soft credit checks do not influence your credit score. These are typically used by lenders or comparison sites to determine your eligibility before applying and to advise which items you are most likely to be approved for.
- Hard credit checks may have an impact on your credit score. These are utilised when applying for credit and will appear on your credit record. Too many in a short period of time might have a bad influence on your credit score and your prospects of being authorised for credit, since lenders believe you rely too heavily on borrowing money.
3. Advantages of having an excellent credit score.
In general, having a good credit history may benefit you:
- Borrow the amount you need—you’re likely to be awarded a bigger credit limit because lenders perceive you as a low-risk
- qualify for additional goods, such as loans, credit cards, and mortgages.
- Lower interest rates make borrowing more affordable.
- Get reduced insurance prices – Insurance companies may evaluate your credit score when deciding on certain forms of insurance, such as vehicle or house, especially if you pay monthly.
- be authorised for a rental property or mortgage, since landlords and mortgage lenders frequently analyse your credit report; however, this may be limited to publicly available material like court judgements.
- Get a job – Some businesses check credit records as part of the employment process, especially for positions requiring financial responsibility.
4. How a low credit score can affect you.
A low credit score may entail paying higher interest rates, having smaller credit limits, or being denied credit altogether.
For example, you might see a loan advertised for 6% APR, but if you have a low credit score, you may be offered a 30% interest rate. Similarly, a credit card may provide a two-year 0% interest period to people with good credit and only six months to those with poor credit.
Other lenders may provide you with a different product from the one you applied for, such as applying for a current account but receiving a basic bank account with no overdraft.
5. A change in your credit score may alter your current interest rate.
Although it is uncommon, some lenders may adjust your current interest rate if they believe you have become a higher risk after your initial application.
