Credit scores explained: a how to guide
A credit score is a measure which shows ones creditworthiness. In other words how responsible one is with borrowing and how likely one is to pay back borrowed funds. A credit score is a number between 0 and 999-depending on which credit reference agency is being used-, and the higher your number is the better creditworthiness you have. This can benefit you in many ways including: having access to a wider range of financial services, potentially being charged lower interest rates, getting better rates on certain insurance products and many more.
A credit score derives from the financial footprint or credit history of an individual. The financial footprint is a record of ones borrowing behaviour, for example, how much they borrowed, how often they borrowed, whether their borrowing increased over time, how many loan applications they made, whether they defaulted on a debt etc. This is all recorded by credit reference agencies like Equifax, Experian and Callcredit. This helps a lender decide whether they wish to provide an individual with credit or not, with what rates, over what time period etc.
A good credit score and how it benefits you
A good credit score benefits you in the following ways:
- Get access to a wider range of financial services such as loans, credit cards
- Get better rates, with a good credit score you have access to a wider range of providers so you can pick the ones with the best rates
- Get cheaper credit, with a good credit score, in some cases, you might be able to get credit with lower interest rates such as a mortgage for the purchase of a property
- Get better terms, with a good credit score you might be able to negotiate on certain terms like your credit limit
- Qualify for insurance products with lower premiums
Ways to improve/maintain your credit score
- Spend less then 30% of your credit limit on credit cards
- Check your credit report and make sure all the information is correct and up to date
- Check for any fraudulent activity and if you see something suspicious report it
- Pay back all debts on time
- Try not to default or miss payments
- Register to vote
- Avoid multiple credit applications at the same time
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