Managing your credit score is a key part of navigating life as an adult. You’ll hear about it frequently, especially as it affects your chances of securing a mortgage for a house, signing a mobile phone contract, signing up to car insurance, opening a bank account and plenty of other important life choices too. But what exactly is a credit score and why is it important?
What is it?
A credit score is a number between 300 and 850 that illustrates your trustworthiness and whether you’re likely to punctually pay for a service. When you apply for credit, the lender will check this score to analyse whether they can take the risk of you paying them back. Essentially, this is predicting your future behaviour by investigating your past behaviour, so your previous credit products will be checked.
How is it calculated?
Your score will be calculated from your credit history. There are usually five factors that are evaluated: your payment history, total amount owed, length of credit history, types of credit and any new credit. Your payment history will take up a large portion of the calculation. Lenders are keen to know what you’ve paid for in the past, and whether this has occurred on time.
Ways to improve it
There are plenty of ways to improve your score if you’re worried that it might be prohibitively low. Paying bills on time is a good place to start: even six months of meeting bill payments should be enough to see your score begin to rise. You can also improve your score with your credit card. By upping your limit on the card you’ll be able to prove to lenders that you’re trusted to borrow larger sums of money. Another option could be taking out a loan and paying it back on time, to create a history of repaying debt. Short-term payday loans are one such way you could achieve this goal.
Benefits of a high score
The benefits of improving your score are clear and worthwhile. The higher your score, the more trust lenders will have in you. As a result, you’ll have access to credit products that can help you navigate life. You’ll have more chance of securing a mortgage on your dream property, plus better credit card packages will be available to you.
Overall then, it’s important to manage your credit score throughout adulthood. There are plenty of ways you can work to achieve this without much hassle. Just remember that different lenders have different approaches to credit scores. Don’t be disheartened if one lender won’t take the risk, there’s always a chance another will trust you.