What is a credit score I hear you ask and how do I improve mine. Well stay turned because in this blog post we'll explain what you credit score means, what it's used for and how to improve it.
In simple terms a credit score is a score associated to your name that tells lenders how reliable you are when it comes to paying back credit. It's used to determine what credit cards, mortgages or loans you qualify for and the higher your score the better.
Someone with the credit score of 999 - the highest you can achieve - tells a lender that this person is very unlikely to default on a payment and there's a very high probability that they will pay back a mortgage or loan without any problems. Whereas someone with the credit score of 1 indicates that they have a poor financial background e.g debt, defaulting on payments, late repayments etc.
A lot of people don't realise how important your credit score is as it can have a massive effect on your life. It's used when applying for a mortgage or a loan, getting approved for car finance and even when taking out a phone contract. Lets take applying for a mortgage as an example and delve a bit deeper into the role it plays
For many of us buying a property is the biggest purchase we'll ever make and unless you're a cash buyer you'll need to get a mortgage to cover the remaining amount once you've put down your deposit. When the banks are deciding whether or not to approve your application they'll take a close look at your financial background and credit score because they want to be certain that you'll give them their money back plus any interest.
Your credit score makes it easier for them to come to a decision.
Generally the higher your score the lower the interest rate will be and the larger the amount the lender will give you, whereas the lower your score the higher the interest and the lower the mortage amount. Imagine a friend asks to borrow money from you but you've lent them money in the past and it's been hard to get it back. In this scenario you're going to be wary about lending money to them again so you won't be prepared to give them as much. It's basically the same approach that the bank is taking.