You’ve heard talk about credit scores, but why are they important? The basic definition of a credit score is that it’s a number which tells people how worthy you are of borrowing credit. It’s like if you had a handful of people come up to you and ask to borrow £10. You can’t give it to everyone, so you want to know who’s most likely to spend the money wisely and pay you back quickly. If they all had scores or ratings that told you this, then your decision would be much easier!
As a consequence, you should always be wary of your credit score. Now, you might argue that it won’t be an issue because you never need to borrow money. This is a mistake many people make. They assume that credit scores only matter to people getting loans. While they most certainly do matter, other things in life can be influenced by a credit score.
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Your credit score can make it harder to buy a car
It’s true, if you want to buy a car, then it can often be more challenging with a low credit score. If you can’t afford to pay for the car in full – which is commonly the case – then you pay in instalments through a finance programme. Therefore, a credit check will be carried out to assess your worthiness.
If you have a bad credit score, then you may be unable to get the car as the company doesn’t trust you. Thankfully, there are companies out there like Quick Car Credit that are making it easier for people with bad credit to afford car financing. But, life is a lot easier – and usually less expensive – if you have a good credit score.
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Your credit score can limit your ability to get a credit card
Credit cards are heavily influenced by credit scores. You may not think about it this way, but a credit card is basically another way of borrowing money. You spend money that’s not technically yours, then you pay it back.
With a bad credit score, some credit card providers won’t accept you at all. This is problematic as credit cards have a range of benefits. For one, they help you build your credit score! Secondly, they also offer financial protection when booking holidays or making other large purchases. Even if your application is accepted, your credit card limits might be excruciatingly low, and your interest fees will be high.
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You may be unable to buy a house
Lastly, a low credit score makes it hard to buy a home. Unless you have the money to buy a house in cash, you’ll need a mortgage. It’s very rare to be trusted with a mortgage if your credit score is low. Why would a bank trust you with such a huge sum of money if you’ve proven that you aren’t creditworthy?!
The good news is that credit scores can be changed. Usually, it takes a few positive financial habits to boost your score. One simple example is to pay things on time. Signing up to the electoral roll will also give you a boost. There are loads of other things you can do, and it’s worth looking into them as your credit score influences so many aspects of your life.