UNDERSTANDING YOUR CREDIT SCORE
For many of us, the word Credit Score can send a shiver down our spine, let alone actually trying to understand how it can impact the things we do in life! We thought we’d break it down so that you can understand a credit score, and exactly what it means to you!
A credit score is a numerical expression based on a level analysis of a person’s credit files, to represent the creditworthiness of an individual. A credit score is primarily based on a credit report, information typically sourced from credit bureaus. Hard work, right? A credit score is determined by how you’ve managed your credit commitments. We’re talking Credit Cards, Loans, Overdraughts – the sort of thing you’ve needed to answer hundreds of questions about to get that product. The credit score is affected by how you maintain these. If you make your payments on time, your score will stay high, if you miss your payments, your score will drop.
Having a ‘good credit score’ will help lenders and creditors decide if they can lend you money, it tells them if they can trust you, it tells them you’re good with money and that you’ll likely not cause them any headaches in the future.
They are looking for you to stay in the higher scores so they can offer you better interest rates, keep you as a customer and overall, it makes things a little bit sweeter when finance doesn’t cost as much right?
HOW DO I IMPROVE MY CREDIT SCORE?
Keep on top of your Direct Debits! Make sure that before your bills are due to leave your account, you have enough money to cover them, if you don’t, this will be marked as a missed payment. Our top tip here is to have a separate account that you can set up all your direct debits into each month and when payday arrives, transfer over the money for the bills, +10% just in case. That way, you know exactly what you must spend for the month without missing a single bill, and you’ll also be building up a decent little rainy-day pot with the extra 10% over the course of a year!
Keep your usage down! Credit Cards are a common thing in life, we all have them and use them for big purchases like holidays. But that can impact your credit score too if you don’t keep an eye on it. You’ll notice your credit score will start to decrease if your credit usage is getting over 75-80%, some credit cards will also show a little warning message when you log in, to remind you that you are near your limit. Where possible, try and keep your usage less than 50%. It shows you can maintain available credit and it leaves you with the rest of the limit to using in the event of a real emergency.
Avoid PayDay loans! Despite what the TV adverts say, getting instant cash the same day so that you can head out for the weekend, isn’t so smart. To lenders, it shows that you’re struggling to make the end of the month. So, if you’re looking to buy a house, and are using a payday loan each month, the chances are, it’ll cause them some issues.
The best tip here is to stay committed to your expenditure. Work it out. What do you get paid? What do you have to spend your money on each month? Then work it backwards to make sure your bills are covered, and you leave yourself with a little something. Far too often we see people saying Yes to everything! Later down the line, it can catch up to you, especially when you’re looking to take out finance. Although sometimes it’s unavoidable, Payday loans may have an impact on you obtaining a mortgage.
We’ll cover off the specifics of credit scores and how they can impact a Mortgage in a later article. But if you want to check out what your score looks like with the three major credit referencing agencies in the UK, then you can access your report free for 30-days via:
https://www.checkmyfile.com/?ref=warringtonmortgagecentre&cbap=1 I’m also here to help you with any questions, so feel free to reach out to me too on
Disclaimer: As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.