Whether it is a loan for home renovations or your first mortgage as a happy couple, there is one thing standing between you and picking out new furniture – your credit score!
What Is a Credit Score?
If you ever apply for credit such as a loan or mortgage, the company or bank you are applying to will need to check that you are able to pay the loan back in the agreed time with any interest added. To check this, they look at your credit score.
Your credit score is built up over your lifetime and goes up or down based on how you handle your personal finances. Paying bills on time is one way of building a good score. Borrowing money is also a great way to build up your score as long as you make repayments on time. This is why some people choose to use credit cards even if they do not need them. They know they can pay the money back and use them as a way to build their credit score.
Your score can range from below 500 up to and beyond 650. The exact number will determine if your potential creditor is willing to lend you money. To find out what your credit score means to creditors, check out this helpful credit score breakdown by Wonga.
The Effects of a Bad Credit Score
Having a bad credit score will mean you are more likely to be refused loans, credit cards and mortgages. It is natural for these banks and companies to protect themselves and the applicants by refusing to lend money when they believe there is a chance they will not be paid back – and send you into further debt.
The effects of a negative credit score can really put your life plans off track. However, all is not lost as there are ways to build up your credit score and be able to be approved for credit even if you have been rejected in the past.
How Can You Improve Your Credit Score?
If you have been rejected credit, it is natural to want to seek out other ways of securing it. This is not an ideal strategy because each application leaves a mark on your credit score and can make it worse. For people with a low credit score, it is better to find money elsewhere, such as becoming better at saving or developing another income stream.
Preventing your score from decreasing is important, but there are also ways of improving your credit score over time:
- Make sure you pay your bills on time every month
- Make full repayments every time
- Check on your credit score at least every six months to identify errors
Your credit score is a reflection of your ability to handle personal finances. By being careful with your money and aware of bills, you can always improve your credit rating in time.