We all know how important it is to save money, whether it’s for emergency situations, a rainy day, holidays or for longer-term goals such as buying a home.
But putting aside a few (let alone a lot of!) pounds can be difficult, especially when you have a tight budget and a family of whom to take care. And the current news of continuing rising food and energy costs means that it’s now even harder for families to set aside some of their income.
Never has it been more important, then, to have a good relationship with the UK’s credit agencies, in case of emergencies or the necessity for a big change in life.
That said, credit agencies, those multi-million pound, privately owned, for-profit, omnipresent companies that lurk in the shadows of everyday life for millions of people, can be a bit of a pain.
Like a stalker, they follow us everywhere, keeping an eye on how we spend, and ultimately, how we live our lives. They have the power to make or break your prospects, regardless of circumstance or the filing mistakes of others.
Indeed, we’ve all heard of peoples whose credit-worthiness has plummeted due to banking errors. According to a report by Which.co.uk, 1 in 5 people have credit reports errors such as a false record of missed payment. As such, some are unable to secure mortgages or even come close to losing their homes. Less than ideal, wouldn’t you say?
There’s something fundamentally wrong with the way credit agencies operate in the UK. And while we are firm believers in the phrase “if there’s been a way to build it, there’ll be a way to destroy it”, until then, here are 8 reasons to look after your credit score.
Just What Is Your Credit Score?
Your credit score is the culmination of your financial health. Credit scores are based on a metric of how much debt to credit ratio you have. And because they track your history of paying back said credit or debit, and project it going forward, having a good score is incredibly valuable.
Good credit scores do not just happen. Most people start out with a base score depending on things like their employment status, their credit card limit, and other factors that help set you at a base score. From there, your score can increase or decrease based on your actions and financial behaviour.
Bad credit is when you miss payments, accrue debt, and are generally poor with your finances through credit. Good credit is the opposite, and represents a certain level of responsibility, but what advantages does a good credit score hold?
Purchasing A House
The biggest thing you can get from a high credit score is the ability to get a mortgage on a house with relative ease and lack of obstacle.
The biggest financial decision of your life is often owning a home, so it really takes a lot of the financial burden off your back when your mortgage rate is manageable, making it easier for your down payment and living costs.
Simply put, good credit scores can help you find an affordable home quickly, so you might also want to think about building your credit score to help with any future borrowing ASAP, if you’re to be approved for a mortgage when the time comes to apply for one.
Read: 5 tips on how to make yourself look financially attractive to mortgage lenders
Better Loan Options
In a similar sense to a mortgage, the better your credit score is, the more options you have for loans. Interest rates can be a real killer for a loan, and with bad credit, lenders will worry about your ability to pay it back. In such cases, the lender will require a signature guarantee from you.
With good credit, your pick of loans will be much greater, and with a lesser interest rate to make paying it back easier. We’re not just talking mortgages here; this also applies to borrow for cars, bank loans, student loans, and business loans.
Leasing Or Owning A New Vehicle
When looking to lease or buy a new vehicle, good credit will protect you from being overcharged. Anything from finding a personal vehicle to buying one to use for business can be made easier with good credit, as you can find better deals, loans or financing.
Higher Credit Limits
Increasing your credit limit is vital when you’re looking to find the capacity to make large purchases. Whether you need to pay for a costly home renovation project or repair your car, these can amount to thousands of pounds of cost. The more trust you build up with your bank or credit card company, the more they’ll be inclined to offer you a better credit limit that allows you more freedom.
Having a high credit limit is good, but do not forget how easy it can be to fall into the debt cycle if you overspend without repaying it, bringing your score back down. Approach with caution, always.
Better Credit Card Offers
The better you are when it comes to handling your credit, the better offers you’ll receive on credit cards, too. We’re not just talking about a higher spending limit; you’ll also find you’ll receive greater access to cashback cards with higher rewards, no annual fees, better bonuses (travel miles), and lower interest rates are among the primary ways a good credit score helps you find better credit card offers.
More Wiggle Room
When applying for a loan, looking for financing and special offers, your credit score will give you a stronger hand at the negotiating table, too. Having a good score can be enough to convince landlords, banks managers dealerships and more to have faith in you from a financial standpoint. This faith can translate into more favourable terms of contract.
No Security Deposits
A security deposit is a seemingly unnecessary, often irritating aspect of doing deals and completing transactions in the modern world. Even something as small as signing a new phone contract can require you to put down a security deposit, which again represents a sign of trust and commitment.
With good credit scores, you can bypass this as you are able to make payments easily as indicated by past financial statements. Not having to put down a security deposit can help reduce upfront costs on all sorts of purchases.
Read: How to save money when shopping for a new smartphone
Better Insurance Rates
Last but not least is the benefit you receive for your insurance coverage. Better rates on insurance are hard to come by, make no mistake about that. Finding the best possible insurance plan means low monthly costs, better deductibles, and better premiums, and so much of the decision about what you’re eligible for depends on your credit score. Is there anything this thing can’t do?!