Your credit score: three little numbers that can make all the difference to your life and happiness. Like your reputation, your credit score lets other people make judgments about how trustworthy you may be. The difference is that potential creditors don’t need to rely on character references to decide the likelihood of you making your repayments, which can be a benefit to you as it offers access to a wider range of borrowing options.
The better your credit score, the more likely you are to be accepted for loans and to secure better interest rates. If you are unsure of your credit score, you can check online at 3CreditScores.net. By regularly keeping an eye on your credit score, you know your chances of being approved for a loan before you even apply. If your score is lower than you’d like, checking your score lets you identify the problem and take steps to provide a remedy. But how do you ensure you keep a high score?
1. Make Repayments on Time
It sounds strange, but having credit can help you build a strong credit score. Every time you make a repayment on time, your credit rating improves slightly. As creditors can see you have a record of paying your bills, they are more likely to offer you further credit. Borrowing is not the only way to build your credit; paying household bills like electricity or rent through direct debit also helps add to your overall credit score.
2. Employment History
Your credit score includes a great deal of personal information: your home address; your open finance agreements; your payment history; your employment history. You may wonder what this has to do with your ability to take out a loan but lenders prefer to offer money to people that can guarantee their income. Ironically, if you are self-employed and earning three times as much as a long-term employee, your credit rating could still be lower as it is harder to prove your income will be regular in the future.
3. A Variety of Credit Options
Lenders tend to trust each other; therefore, the more different types of credit that appear on your account, the higher your rating can be. As well as loans, paying monthly through a bank for items like insurance are also taken into account. Keeping a good range of accounts in good health increases your credit rating, making you more likely to be accepted for a loan or hire purchase agreement.
Having a low credit score can make you feel like you are walking around with the plague. All the everyday options available to other people begin to be closed down to you, such as mobile phone contracts, car loans, even rental agreements. Once you have fallen into a downward spiral of poor credit history, it can also be very difficult to climb back up. Higher interest rates and loan refusals mean you can’t borrow your way out of high repayments, and the more you slip behind, the lower your rating could fall. While there are steps you can take to work your way up from a low credit rating, prevention is certainly easier than cure.
1. Collections Accounts
If you can’t pay a bill or miss a payment, a note is immediately recorded on your credit history. Continued missed payments or long delays can lead to lenders involving the courts or selling your debt to a collections company. This remains on your record long after the debt has been paid in full, continuing to have a detrimental impact on your credit rating.
2. Large Debts
It is fairly obvious that people with higher debts could find repayments more difficult than others, which is why the higher amounts can contribute towards lowering your credit rating. In the case of credit cards, even if you have not spent any money, having access to that credit can be counted towards your total borrowing capacity. If at all possible, it is always best to pay off one debt before starting another.
3. Late Payments
While missing payments can mean your account is referred to collections or court judgments, every missed payment is recorded and lowers your credit rating. It can take up to two years to build your credit rating back to the point it was at before you missed your payment. Staying organized can make all the difference.
A good credit rating can open doors to your future and even give you a better chance of landing a job, especially if you want to work in the finance industry. A low rating can stop you living a normal life or even being able to secure somewhere to live. Higher interest rates can also mean that you could end up paying almost twice as much if you do manage to land a mortgage. Take our advice and look after your credit score, and it will look after your future.