Your Credit Score & Why it is Important

Your Credit Score & Why it is Important

There are many reasons that someone might have bad credit. This can impact whether you are accepted for loans in the future, for mortgages, will impact the interest rates you are offered and more. You could also be turned down for credit. I look at what your credit score is, what it means, what affects it, how you can improve it and what to do if you need a loan when you have a low credit rating.

What is Your Credit Score

Your credit rating paints a picture of where you are financially and how you manage your money. This is important because lenders use your credit score to determine whether or not they think you would be a risk as a borrower. Decisions about what financial products are available to you are based on this. The information that makes up your credit score include how much outstanding credit you currently have, whether you have any late payments, missed payments, defaults, CCJs and other financial arrangements. Only paying the minimum payment on your credit cards, for example, can alter your score. 

Keeping Your Credit File Up To Date

You can access your credit rating via services such as Equifax and Experian for free. If you want more in-depth information about what makes up the score, a monthly subscription fee is payable. This information can be very useful as it helps you pinpoint what might be affecting your score. Your credit score file may have information that is wrong or out of date and it is up to you to make sure that this is rectified.

Causes of Bad Credit

A low credit score may be caused by many things. If you don’t stick to your payment agreement, are late, if you have defaulted or even if you fall victim to identity theft, you can be vulnerable. If you have never had credit before your score might be low. This isn’t because you are bad at managing money, it is because you haven’t shown that you are good at it yet. Each lender has their own algorithm when it comes to lending on top of your credit score but what your file shows them does make an impact on lending decisions.

When You Need Credit But Have a Bad Credit History

Frustratingly it can be really hard to get what you need from lenders if you don’t have the best credit score, even if it isn’t necessarily your fault (lack of credit experience, identity theft etc). What then do you do if you need a loan to cover house move costs, a holiday, want to consolidate debt and so on? There are now loans from lenders who specialise in bad credit loans. The interest rates tend to be somewhat higher yet it is possible to find decent deals, which for a much-needed loan, is good news. Make sure that you shop around and check interest rates, fees and so on properly, as you would with any financial product.

Moving Your Credit Score Forward

If your credit score is poor or could be better take the time to find out why and work to remedy it. You never know when your circumstances might change, when a loan might be needed, and it’s best to have a credit file that is up to date and moving in the right direction to help you get accepted for the most competitive financial products in the future. 

 Teaching the Importance of Good Credit and Sound Financial Planning

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I’ve written in the past about how important I feel it is for us as parents to teach our children about financial matters. At this stage, with my children being 3yrs and 8yrs we have limited this pretty much to savings, not buying on credit and choosing carefully what you spend your money on.

Our next stage will at some point be to talk to the boys about more in-depth financial matters. Growing up we didn’t get “proper” financial education at school (unless paying a pound a week into the school bank counts?) and so we’ve been firmly behind Martin Lewis’ campaign to introduce financial education as part of the national curriculum.

Roy and I firmly believe that it is up to us to teach the boys as they grow about the importance of pensions, protecting your identity and financial information and of knowing and understanding your credit rating. As with all things with financial matters if you have a good grounding before you are thrown out into the world where all the temptations of credit products and spend now worry later options exist you will be better placed to make smarter decisions.

We wish that we’d known more about pension plans, investments and insurances when we were younger as our “pots” which are supposed to tide us over when we are older would be a lot fuller than they currently are. With so many products available now, never mind when the boys are older it makes sense to know what you want or at the very least how to find out about what you want and need from a reputable source.

Places like the credit expert website offer an easy to use to tool to help you navigate your credit rating, to fix any errors and to learn more about how you may improve it. While we believe saving up for things before you buy them is important credit does play a part in modern life, with things like car finance and of course mortgages being effected by how well or poor your credit rating appears. We plan to teach the boys the fundamentals of financial planning and ensure that before they are thrust out into the big bad world to function independently that they also understand where to go for help and advice for financial matters.

The old saying goes that money can’t buy you happiness and of course there are more important things however money can buy you security, opportunities, freedom to pursue your interests and ensure that no matter what happens in your life that you are covered so to speak. We have plans and we have products in place to ensure that our kids will be fine, no matter what happens to us and all that we want is for them to have the same peace of mind.

What do you plan to teach your kids about finance and their future? I’d love to know. I really think such matters being covered in school in the future will be an amazing improvement on what is offered now however still believe that it is up to us as their parents to reinforce what they learn and ensure that it is adequate.

Kieran is already a keen saver and we hope to encourage him to extend this into pensions and investments when he is a little older, as well as building an awareness of what a credit rating is and why it matters for himself and his brother.
Kieran is already a keen saver and we hope to encourage him to extend this into pensions and investments when he is a little older, as well as building an awareness of what a credit rating is and why it matters for himself and his brother.
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