There are so many ways in which a good credit score could benefit your financial life. There are actually no drawbacks to having a perfect credit score and it can help to get you the lowest interest rates and highest credit limits when you borrow money. In you’re in a poor credit situation, the guide below can help you to improve a low credit score and discusses the benefits of better credit.
Why does good credit matter?
When you apply for any form of credit or finance, a lender will usually want to run a credit check on you. This means they want access to your credit report to see how you’ve handled your finances in the past. A poor credit score can happen when you miss payments on loans or finance, make late repayment, have high levels of debt, have been bankrupt or have a default on your credit file. This can make it harder to get approved for car finance with bad credit or getting a mortgage in your name. Having bad credit also affects the credit limit you could be offered on a credit card or something as simple as getting a mobile phone contract.
Benefits of having excellent credit:
- Save on interest rates.
A better credit score can help you to get a lower interest rate on loans and finance. Lenders usually reserve their best finance rates for those with the best credit scores, this is because they are less of a risk to lend to and are more likely to pay their finance back on time. Lenders may accept people with low credit for a loan but can use higher interest rates to secure the deal.
- More finance options.
When you have a poor credit score you may be limited to the lenders who wish to offer you finance or you may even be refused finance all together. Having more lenders who would like to offer you finance because of your good financial history can give you more options. It also means you can choose the best deal or get the lowest rate.
- It is easier to get accepted.
When you apply for a loan with a bad credit score, lenders can see you as more of a risk. If you’ve had trouble making payments in the past, lenders may assume you will resort to this kind of behavior again and they won’t get their money back. If they feel you won’t pay back your loan, they can decline you based on low creditworthiness. You can find it easier to get approved for finance when you have a ‘good’ or ‘excellent’ credit score as you pose less of a risk to lenders.
- Higher credit limits.
When you apply for a credit card, you can choose your credit limit, but some lenders may decide a credit limit for you. Your credit limit can be calculated based on your personal situation and if a lender feels you can’t handle a high credit limit when you’re struggling with your current credit, they may only offer you a small amount. Yoru credit score takes into account how much available credit you have and how much you’re using. People with good credit scores only use around 30% of your available credit at once.
How to easily increase your credit score:
If you find yourself with a low credit score and you’re wondering how you can improve it, our top tips below can help you. Remember a good credit score is all about building new financial habits so it could take a while to instill trust with future lenders. But the benefits will be endless.
Make payments on time.
One of the easiest and most effective ways to rebuild a bad credit score is to make sure you’re meeting all your current payments. Set up direct debits and make sure you have enough money in the account so the payment will always be made on time and in full. If you’re struggling to pay for any of your credit obligations, speak with the lender to see how they can help.
Check your credit report.
You’d be surprised how many consumers allow a lender to run a credit score when they haven’t even checked the score themselves. Not knowing what is listed on your credit score and what information the credit agencies hold for you can be costly. Even having a living address which isn’t up to date can affect your credit score.
Reduce current debt.
As we’ve mentioned above, your credit score is calculated by how much of your credit limit you use. Maxing out all your credit accounts to the limit can lower your credit score. Before taking on anymore credit or finance, you should try to pay down your debt first. This will help to improve your score but also better your finances too.
