A credit score may not be the first thing that pops into your mind when planning your finances. However, this three-digit number will play a major role in every aspect of your financial management.
A credit score represents your creditworthiness to your lenders, landlord, bank and employers. It tells the lenders how risky or safe it is to allow you a line of credit.
Your credit history talks about your ability to repay the borrowed sum within the agreed terms of the period. The more of a committed history you represent, the better your score will become over the years.
What Is The Importance Of A Good Credit Score?
The credit reference agencies in the UK like Experian, Equifax, and TransUnion consider all your financial details such as payment history, credit exposure, credit mix, credit inquiries, and the length of credit history to decide the final rating.
This credit history file of yours will entail information dating back 6 years or more. So, the loans you have taken, payment defaults, your employment history, and even the number of times you’ve changed houses will influence your chances of fetching a good score.
You might have a question, what is a good credit score uk? This will depend on the individual company and application. Bear in mind that the higher your score, the more advantageous for you.
Loan Access Through Lenders
Most lenders around the UK check the credit scores when you apply for a loan. This applies to loan approvals for students, cars, mortgage, etc.
Your credit score will give you better access to credit. An excellent credit score will indicate that you have a higher possibility of paying back loans to the lender.
Your credit scores decide the amount of loan and the rate of interest. With a good rating, you are more likely to be able to borrow more money at a lower interest rate.
Insurance companies use the credit score to assess a potential insured’s level of risk. They use it to set premium plans. This insurance could be that of health, property, automobile or life insurance policies.
The credit rating will affect the premiums you pay for the coverage every month. Credit score will decide the insurance score, which represents the probability of you filing an insurance claim while under coverage. A low insurance score can cost you a hefty cut every month for premium payments.
Renting An Apartment
Your landlord will subject your credit history to some scrutiny before renting you an apartment. Renters use credits checks to ensure that you are reliable and will pay the rent on time.
But, for the landlord to go through with the credit check, you will need to grant him permission in writing. As a prospective tenant, you might want to build up your rating before the landlord looks into your credit profile.
A good credit score could land you in a spacious apartment with the trust of the landlord. But if you have a County Court Judgement (CCJs) or insolvency solutions on your credit history report, then there’s no guarantee of an easy transition to a new apartment in the UK.
Banks lend money only to the people who are more likely to pay them back. They need to consider any potential risks when handing out loans to applicants to avoid any financial losses arising from any debts.
If you wish to open a bank account, keep in mind that the banks check your credit history before approving your application. When you apply for a checking account, the bank might conduct either a soft or a hard check on your credit report information. The type of enquiry will be based on your overall credit performance.
You might trigger a credit check if you seek overdraft protection on the checking account. Therefore, understand the procedure of the bank before signing up. Your bank may end up reporting to the credit bureaus, which will further hamper your credit score.
Better Credit Cards
A good rating will grant you faster credit card approval with increased limits. Creditworthy individuals stand a chance to get better credit card rewards and cashback facilities.
A splendid performance on the credit card will be immensely useful if you intend to seek any form of credit in the UK from personal loans to home loans.
Law and finance firms are legally obligated to undergo credit checks for potential applicants. The financial services industry is more likely to indulge in credit check as your work majorly involves dealing with money.
Therefore, if you have a good credit track record of managing finances, you are more likely to be hired than your competitors. However, if your credit history reveals poor financial management, you will struggle to get a job in these sectors in the UK.
Today, many employers across a variety of domains prefer to check a candidate’s credit scores before offering them a job. The credit checks aren’t mandatory, and potential employees are within their rights to refuse the request. But doing so can have wider repercussions and weaken your application in the employer’s eye.
With increasing debt levels in the UK, credit scores are gaining more importance in a variety of sectors and as such, building a good credit score has become an increasingly worthwhile financial goal for all.
A perfect credit score will sail you through all the financial processes smoothly without hassle. Remember, the highest credit scores are the one who will get the offers on the advertised rate. The rest end up paying more than the standard rates of advertisements.
Check your credit reference file regularly before you apply for credit. Review all the facts which might affect your application being processed smoothly. The credit score free providers will help you analyse your ratings and take actions.
If you already possess a good credit score, it will be an incredible opportunity for your financial outlook. If not, it’s high time to focus on your credit score to improve the rating for a better financial future.
Smriti Jain is the owner and senior content publisher at Financesmarti. Financesmarti is a website where she shares a lot of useful stuff for the people and business of India. This includes small business ideas and other banking information, as well. Smriti completed her education in science & technology from Delhi University. Smriti usually has interests in digital marketing now, and she has chosen this career for the full-time opportunity. The primary purpose of starting this blog to provide quality information on the banking industry to the people.