You often see advice on the internet about how to improve your credit score, and some people it can seem a bit confusing. Why is a credit score so important? What are some of the reasons why you should care about whether or not your credit is good?
Here we are going to take a look at some of the things that affect credit ratings, why it is a good idea to do what you can to keep yours in good standing, and also what you can do if you need to improve a bad or non-existent credit rating.
What Kinds of Things Affect Your Credit Rating?
Your credit rating is effectively an indicator of how much lenders can trust you to repay anything lent to you. It is a number made up of a lot of factors, including your history of repayments, and how much money you have borrowed and successfully repaid. A lot of things affect the credit rating and it is something of a mystery even to data experts exactly how it is calculated. However, it is known that your credit rating is affected by things like credit cards, store cards, car repayments, bank loans, your mortgage, and even things like having a contract mobile phone and paying your bills on time. Sometimes, your credit rating can even be affected by applications for financial products which involve a credit check. When you apply for a loan or credit card, even if you are unsuccessful it leaves a footprint, which will have an impact on your credit rating and can possibly make it look worse if you are rejected for the product you have applied for. This is certainly something to bear in mind when you are shopping around for loans or credit cards.
What Are Some of the Effects of a Bad Credit Rating
If you have a poor credit rating, you will find it harder to gain access to important financial products. This can include things like mortgages, as well as smaller products like credit cards and loans which you may need. Having a poor credit rating can also affect other things, such as when you want to rent a property and the landlord or agency performs a credit check, or even when some employers perform credit checks before hiring a person. Having a bad credit rating doesn't mean that you will not be able to borrow any money at all. There are bad credit loans available, but you will find that the options open to you when you need a loan are far less appealing and you may have to spend a lot more in interest to borrow the funds you need when you can only access loans for bad credit. You may also be unable to borrow the amount of money you need with the repayment schedule that you want.
Having No Credit History
Another point that confuses a lot of people when it comes to credit is that having no credit history is almost as bad as having a bad credit rating when it comes to pass and credit checks. It may seem strange that someone who has never borrowed money is seen as a risk, but it means there is no way of telling how reliably someone will pay back any money lent to them. It is quite common for young people who have only been old enough to gain credit for a little while to have no credit history and so they often have to use their parents or other older people they know to co-sign on financial products they want to use. If you have no credit history at present, then the best thing to do is to start building one.
Improving Your Credit Rating
Whether your bad credit rating is the result of past mistakes and problems where you were unable to repay things like credit cards on time, or it is simply that you have never borrowed a substantial enough amount to gain a good credit rating by repaying it, it is still important to try and rebuild your credit rating as quickly as you can so that you will have the best range of options for things like mortgages and loans in future.
The easiest way to rebuild a credit rating is to take out credit cards. These tend to have low maximum spend and high-interest rates. The intention is for you to use them to buy things that you can already afford and would normally spend money from your current account on and make repayments in full every month to demonstrate that you can reliably repay the credit. It can take a few months for you to start seeing the results of doing this, but so long as you always repay at least the minimum on time, you should see that your credit rating begins to go up.
The first step towards having good credit is, of course, knowing what your current credit score is, so whatever your current circumstances, it is a good thing to check and to keep checking on a regular basis.