What is Your Credit Score? Find out today.

Your credit score is a record of how you appear to have been managing your money in the recent few years.  There are various companies to which large companies report to on whether you have kept to payments or if you have been late.

How important is your credit score?

The quick answer is hugely.

  1. Did you know that your credit score affects your ability to qualify for loans? And it then influences what sort of interest rate you will have when borrowing. If your credit score is poor, you are more finacially risky, and therefore the interest rate you will pay will be higher.  So, knowing your score before you begin the process is key. Even your car insurance premium is affected by your credit score.
  2. Applying for credit cards. This is also linked to and influenced by your credit rating. Special deals, introductory rates and perks are usually only available to customers with a credit score within the ‘excellent’ category.
  3. Some employers check your credit before final decisions are made about who is to be hired. They will only be able to see your credit report and not your score.
  4. Your score will keep changing so regular monitoring will help you to understand how everything works. You will be able to track the changes and see the effect that certain actions have had.  We have found that ClearScore provides a good app with a monthly report generated, and provides you with email alerts when new finance is being taken out in your name.  The app also explains in detail how credit scores work, and provides you with tasks to complete which will improve your own score.

What will lower your credit score?

  • If you apply for too many loans or credit cards in a short period of time, your credit score will decrease.
  • Using your credit card too much or not using it at all damages your credit score.
  • Late payments are penalised. We advise our clients to set up a direct debit payment that takes the minimum amount payable each month.
  • Cancelling credit cards has a negative impact upon your score.
  • If you use your credit card to purchase exceptionally large items your credit score is lowered.

How to improve your credit score

The first obvious one is to pay your bills on time.  A good track record of meeting payments is better than not having any payments to be met.  Set up direct debits to at least take the minimum amounts to be paid on credit cards.  You can then make overpayments as and when you are able to.  However, the minimum payment direct debit ensures you do not miss a payment.

Do not close unused credit cards.  Your credit score assesses how well you use the credit available to you.  If you have more credit available to you, which is not being used, it means you have more of an ability to meet new financial obligations.

As mentoined above, having no credit cards can be more detrimental than having long term balances on credit cards.  The ideal is for you to regularly use your credit card at around 10 – 40% of the credit avaialble to you.  This demonstrates that you are able to operate within the credit limits.

Check the information held on your credit report is accurate, and if it is not dispute it and get it changed.

Limit new credit requests.  One of the criteria for your credit worthiness is how many other companies are “looking you up”.  So look for companies to use “soft searches” which do not leave a trail on your credit history.  Obviously, this is not always possible, but only proceed with new financial products if you intend to take them out.

Clear any outstanding payments that you can, to keep your borrowing to below 50% of the credit avaialble.

Credit scores are improved if you only use between 30%-40% of your available balance. So try to spread your borrowing evenly over different products.  For example, if you have 3 credit cards, each with a £10,000 credit limit, your credit score will be far more improved if each card has £3,000 of borrowing on it, than if one card had £9,000 of borrowing on it and the other cards were dormant.

Coronavirus – will it affect my credit score?

On 31st March 2020 homeowners were given reassurances about their credit scores from Experian, Equifax and TransUnion . If homeowners needed to take out a mortgage payment holiday, the three credit reference agencies confirmed that their credit scores would be protected.

Guidance from UK Finance stated that mortgage providers must “make every effort“ to ensure payment holidays do not damage credit files.

At Simas Accounting & Tax we encourage our clients to regularly check their credit score and foster healthy financial habits, insuring their score steadily increases.

Find out what your score is today – CLICK

 

Simas Accounting & Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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