You may have realised that your credit score can play an important role in your life. You may not, however, have realised just how important it is. That means you may not appreciate just how much it matters to take good care of it. Even if you do, you may not fully understand what you can do to influence it. Here is a quick guide to help.
Why your credit score is important
The most obvious reason your credit score matters is so that you can get credit. As a rule of thumb, the more credit you want, the more your credit score matters. For example, getting approved for £500 of credit on a buy-now-pay-later scheme is usually vastly easier than getting approved for a £500K mortgage.
What qualifies as credit isn’t necessarily obvious. For example, you may never have thought of paying utility bills as getting credit. If, however, you pay in arrears, that’s exactly what it is. As such, you have to qualify for it. If you don’t, then you will find yourself on a pay-as-you-go tariff. These can be significantly more expensive than paying in arrears.
Credit scores can also be used as a useful indication of your ability to manage your money. For example, they are regularly checked by landlords. They can also be checked by employers, particularly for more sensitive roles.
Why it matters to take care of your credit score
In an ideal world, your credit score would take care of itself. You would simply manage your money responsibly. This would be reflected in your credit score and that would be the end of the matter. Unfortunately, the real world doesn’t work like that.
Firstly, it can be easy to make hasty decisions that can have a negative impact on your credit score. It can be even easier to let things happen without thinking. Both are particularly likely when you’re short of time and/or money and generally under pressure.
Secondly, even with the best financial skills in the world, mistakes can happen. Sadly, so can deliberate fraud. Both can be put right but it generally takes time and sometimes it takes a lot of it. This means you want to have any issues resolved before they have an impact in the real world (e.g. you get turned down for a mortgage).
How to take care of your credit score
You actually need to take care of your credit scores. The most important ones are the ones held by Experian and Equifax. There are other credit scoring agencies in the UK but currently, they are relatively niche.
Register for their free service so that you can get an overview of your credit scores. This should alert you to any mistakes or fraud. If you spot a mistake, report it to the agency. If you spot fraud, then report it to the agency, the police and any other relevant parties. For example, if you see a loan taken out in your name, report it to the lender.
Make all payments in full and on time if you can. If you really can’t, then contact the creditor and make a suitable arrangement with them. This may not completely prevent damage to your credit score but it should limit it.
On similar logic, try to avoid getting locked into contracts unless you’re totally sure that you both really need them and that you can fully commit to them. For example, getting a new handset on a contract may be nice. In general, however, it’s more economical to buy a handset and use a SIM-only deal.
As a final point, make sure that all your financial paperwork ties up. For example, make sure that everything is in the same name and linked to the same address. If you can, register on the electoral roll at that address.
For mortgage advice, please get in touch.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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