Financial

The Importance Of A Good Credit Score And How You Can Improve Yours

The idea of credit scores can be a frustrating topic for many people around the country, but this doesn’t diminish their importance. There are many reasons to ensure you have a good credit rating, and failing to improve an average score or fix a bad one can have some very negative consequences for you throughout your adult life. The process of improving a credit score can, unfortunately, be a lengthy one, but it’s important to tackle, nonetheless. This article aims to discuss why a credit rating is so important, what issues you can run into by having a poor score, as well as what sorts of things you can do to improve yours. 

What Harms A Credit Score?

First of all, we should discuss a few of the different things that can influence a credit score. Certain things will make it increase, whereas some will make it drop, and usually, the things that can drop your credit score will do so faster than anything that can raise it. This is why it’s so important to protect your credit score and not allow yourself to make any mistakes that may cause it to drop.

  • Applying For New Credit Often
    Applying for new credit, whether for a new phone, a car, or any other form of loan, will put a mark on your account. This mark isn’t necessarily bad at all, but the more credit you apply for in a short space of time and without paying off previous loans, the higher the risk that your score will start to drop.
  • Teetering Close To Your Credit Limit
    When you have an overdraft or a credit card, regularly maxing out your card or edging close to your overdraft limit can actually hurt your score significantly as you’re demonstrating a lack of financial responsibility. You should be striving to reduce the value of what you owe to show that you have the ability and the willingness to pay those loans back.
  • Missing Planned Payments
    When you have direct debits set up to pay for services or pay off loans, late payments can impact your credit score, but this won’t be too substantial unless it starts to become a regular occurrence. This will also depend on how long it takes you to rectify the missed payment. Sometimes it’s out of our control or a simple mistake resulting in a missed payment, so there is some leeway here. Don’t get into this habit, and try to do everything you can to ensure your payments are always made on time.
  • Setting Up New Accounts Regularly
    When you switch bank accounts, your credit score will drop a bit. However, this is not a permanent or long-term drop and will recover over time. However, if you were to then open another new account too soon, you won’t be giving your credit score time to return to its original level.
  • Having No Credit
    A credit score is designed to show lenders that they can trust you to make payments on time, and the only way to help them trust you is to have credit that you pay back without any issues. If you have no credit, you are essentially an enigma to lenders. Some, especially for more serious loans like a mortgage, may not be willing to trust you even though you haven’t necessarily shown that you can’t handle credit either.

Is It Possible To Get A Loan With Bad Credit?

The short answer to this is: yes, it is possible. You might want a loan for lots of reasons, for example bad credit car finance. However, there are a few things to think about if you’re going to be pursuing this. Ultimately, most loans provided by lenders such as banks are only likely to be accepted if you have a good credit score, as this will give them the confidence that you’ll pay it back properly. However, loans can sometimes be necessary to help us deal with unexpected payments that we simply cannot afford in one go. You can get payday loans for bad credit from companies such as Sunny, which are perfect if you need to fix something essential in your life, like your boiler or your car. Sunny has helped 1000s of people deal with issues like this when their credit score is still recovering. Just remember to pay it back as soon as possible, as interest rates on payday loans can be very high and should be avoided by those who don’t have the means to pay it off in a short time, such as with their next paycheck. 

What Are The Benefits Of Improving Your Credit Score?

This may seem like it has an obvious answer, but there might be a few things you hadn’t thought of in regard to the sorts of benefits you get from keeping a good credit score. First of all, as we’ve already touched on, you’ll be in for a better chance of being accepted for loans when you have a good credit score. These loans can vary in size depending on your credit score, like being able to get a mobile phone contract with an average credit rating or a mortgage with a good or excellent rating. As well as being accepted for a loan, you’ll also notice lower interest rates on credit cards and loans. The higher your score is, the better your insurance rates will be and the higher the credit limits on your credit card will be, too. These are all demonstrative of how much more trust lenders will have in you and your ability to pay things back on time.

How To Improve And Maintain A Credit Score?

Improving your score is sadly no easy process and will require time and effort to get it to where you want it. You should keep this in mind when working to improve things here and not be disheartened if you don’t notice any immediate changes to your score in the coming months. If you make sure you avoid all things that will harm your credit score and take these further steps, you’ll find your score improving over time, allowing you to benefit from a great credit score.

  • Keep An Eye Out For Errors
    Credit score calculation is very strict, and sometimes your credit score can be dropped because of the most minor of issues. For example, a typo in your address, name, or other personal details can hurt your score even if you haven’t caused the typo. Be vigilant when filling out information for accounts, and triple-check everything to make sure it’s correct.
  • Verify Your Address
    When someone moves home, it’s common knowledge that they need to update their address on their accounts with important businesses and authorities. Any company that you have direct debits or loans with, for example, should have your up-to-date address, or there is a risk that your credit score will take a substantial hit.
  • Develop A Long Credit History
    As we’ve mentioned a few times, your credit score is designed to give lenders confidence in you, so it’s helpful when you have a long and respectable credit history. Paying a few things back on time in the space of a few months is not going to rectify years of late or missed payments. This is why you must work to create a long and positive credit history to showcase your trustworthiness. It will take time, but this will slowly build up your credit score and improve your situation a great deal.
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1 Comment

  • Reply IDT Finance December 22, 2022 at 10:21 am

    This is an informative article about the benefits of a good credit score. There was a great deal of clarity and ease in your explanations. IDT Finance appreciates the content of your article.

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