The idea of credit scores often makes many of us stressed as they can generally feel quite unfair at times. The goal of a credit score is to show businesses how trustworthy you are when it comes to borrowing via credit cards, credit accounts, or getting yourself a loan. Increasing a credit score is generally much more difficult than it is to make it drop, and so it tends to be a case of working hard to prevent it from dropping while allowing it to increase slowly over time with several positive factors. So why are credit scores so important? And what can you do to increase yours? Find the answers to those questions below.
What Is A Credit Score?
As we touched on briefly above, credit scores are essentially a system in which a particular score is calculated for everyone based on their record of handling their credit and bill payments. The whole purpose of a credit score is to provide those that might provide credit to customers or loan givers, like banks, the ability to check how trustworthy you have been in the past when it comes to paying things off. For example, if you frequently have missed payments and are unreliable when managing your bills, this will be a red flag for those providing loans and contracts.
Why Will A Bad Score Stop You from Getting A Loan?
Your credit score will act as that record to show people that they should think twice before providing you with a loan, as you have a history of failing to pay what you owe. It might seem somewhat harsh, but it does make a lot of sense. Consider it from a personal perspective. If a friend asked you for a loan, you’d be less likely to agree if you knew they’d borrowed from other friends and never paid them back. On the other hand, if they have borrowed from people before and you know for a fact they always paid back on time or even earlier than agreed, you’d be much more likely to agree.
How Do You Check Your Score?
There are a few ways in which you can check your credit score, but these tend to involve using a third-party credit score checker such as Experian or ClearScore. After creating an account on these and entering some necessary details, these sites will be able to present you with regular soft credit checks so you can keep on top of your score over time. There’s a difference between soft and hard checks; a soft check won’t impact your overall score, but a hard check, however, will be done by someone that is looking to see whether your score is high enough to provide you with credit or a loan, and this hard check will drop your score. This is because multiple credit applications in a short period of time are seen as a high-risk activity and irresponsible.
Why Does Your Credit Score Matter?
You might be under the impression that your credit score isn’t important because you have no intention of getting a loan for anything, but this mistake often comes back to haunt people. Your credit score can affect a lot more than simply whether you can take out a loan from a bank. It can hurt your ability to get a contract on a new mobile phone, your ability to finance a new car, and especially hurt your chances of getting accepted for a mortgage. While you might not think those are a problem for you now, your needs and wants can change over time. When it comes to applying for one of these things, if you haven’t built up your credit or you’ve let it drop significantly, you’ll struggle to get accepted.
Can You Get Loans With Poor Credit?
While it is going to be difficult to get accepted for most loans, there are companies out there that will offer the opportunity to get a loan or finance something like a new car when you have a bad credit score. After all, there are a number of things that can impact credit ratings that don’t necessarily come from people’s inability to pay their bills. It can sometimes happen due to a simple mistake or error, but credit ratings won’t take intentions into account. Sometimes it’s necessary to get a loan to help deal with specific things in life. For example, let’s say you need your boiler replaced. If you don’t have the money right now, you could consider short-term loans from companies like Sunny, which you can then pay back in full the following month once you get paid. Short-term loans should never be taken if you aren’t certain you’ll be able to pay them back on time, and it’s your responsibility to make sure you can manage that.
How Can You Boost Your Credit Score?
While we’ve spoken at length about why it’s not good to have a poor credit rating and what sorts of things will make it drop, we haven’t yet considered the things you can do to improve your score. Boosting your credit score is a lengthy process at best, so you should keep this in mind when thinking about yours. It’s not something you should leave until the last minute, as it can take years to boost a credit score to acceptable levels if it’s really low. If your score is average or poor, you should start working on boosting it right away, even if you have no plans to get any form of credit in the near future. After all, it’s better to have good credit and not need it than the alternative.
- Study Your Reports
Your first step here is to study your free monthly reports from whichever credit report company you choose. In some cases, you can also pay for a premium service which will even boost your score somewhat due to your active interest in your credit score. This will also give you an in-depth look at all of the different things that are influencing your score. This includes the good and the bad, so it will let you identify anything you need to fix or change to increase your score.
- Get New Credit
While it might sound counterproductive to get new credit while trying to boost your score higher, it’s actually a good idea to get some minor loans or credit cards under your name as they will help you to build your credit history. This is why it’s also not a good idea to avoid credit throughout your life, as you’re essentially turning yourself into a giant question mark as lenders won’t know if they can trust you or not.
- Pay Your Bills On Time
Any bills you might have should also be paid on time. At the same time, it’s not entirely a problem to be late on a payment every once in a while because you’ve perhaps forgotten to move money into the correct accounts, for example. However, repeatedly making late payments or failing to pay on time at all is going to be seriously bad for your credit score. However, if you’ve got new credit, as suggested above, and are paying on time without fail, your score is going to start increasing.
If you follow the above suggestions and also ensure that certain details, such as your home address, are correct on your account and that you’re signed up to the electoral register, it’s only a matter of time before your credit score begins to rise.