Your credit score is an essential factor when you’re borrowing, renting, taking a contract, and other parts of life. When you sign up for a new loan, you will be judged on your score. If your score isn’t high enough, the banks won’t grant you a loan.
What is a credit score?
A credit reference agency provides your credit score (think Equifax, Experian). Each of these agencies collects millions of pieces of information about you, your finances, and your credit history. This information is used to calculate a score representing how well you’ve handled your finances in the past.
How to maintain a good credit score.
It’s essential to do things to help you maintain a good credit score. You can do some easy things to help make sure you have a strong score.
Sign up for a credit score website – Experian, Clearscore, and Equifax are some examples. You can then keep on top of your score and avoid silly mistakes. We see a common mistake of people moving houses and forgetting to pay bills. Unpaid bills can have a significant impact on your future borrowing options.
Borrow a little bit – Remember, whether it’s a mortgage, loan, credit card, car lease, or phone contract you’re applying for, the lender wants to know if you can be trusted. Therefore, SOME borrowing is better than none, assuming you’ve paid off the previous debt on time. Someone with no credit cards, overdrafts, or phone contracts in the past may struggle to obtain a car loan – this is because there is little proof that you can pay your debts in full and on time.
Pay all of your bills on time.
Keep your credit card balances low. It’s best to stay under 30 percent of the limit.
How lenders use your credit score.
Lenders use your credit score to assess your financial health and determine whether they should lend you money. In addition, a lender might look at other factors in your credit report when deciding whether to lend to you, such as your payment history, total debt, and other factors.
Lenders want to know how much money you bring in every month and how reliably you pay back what you owe. All of this information is contained in your credit report.
Unfortunately, it’s not like the old days of sitting down with your bank manager and convincing them you’re a good, honest person. If your credit report has blemishes, this will automatically affect your borrowing potential.
How your credit score can affect the cost of buying a home.
When you’re looking at buying a home, your credit score will affect whether you’re approved for a loan and the interest rate you receive. The better your score, the more likely you are to get approved for a loan, and the lower your interest rate will be. A low credit score may also mean you’ll have to put up a bigger deposit. It’s important to know what scores lenders look for to get the best mortgage rates and terms.
It is often best to speak with a mortgage broker when buying a home. Brokers have access to many lenders, often not available on the open market. At Engage Wealth Management we work with several high calibre mortgage brokers. Get in touch if you would like a recommendation.
Your credit score can affect many important parts of your life including obtaining a mortgage, loan, credit card, phone contract, or leasing a car.
An important aspect of taking control of your own finances is managing your credit score. Several potential factors go into one’s credit score, with payment history being the most important one. Your credit report can give you an idea of how well you’re performing in this area and how you might do in the future. Be sure to keep on top of your own credit score.
Is your credit score perfect? Great! Click here to read our recent blog on strengthening your finances.