Having a good credit score improves your chances of being accepted for credit by lenders, but it can also help save you money. Read on to find out about how your credit score can give you better financial options.
What is a credit score?
A credit score is usually a three-digit number that’s designed to show the status of your personal credit file. It’s an indicator of how well you manage your finances, such as how likely you are to keep up with repayments, based on your credit history. The number isn’t fixed. It can move up, down or stay the same, depending on how you manage any money you borrow.
You may also notice a change to your score if you apply for credit, such as a credit card or loan. This information is in your credit report, which details your personal details, any loans or credit you currently have open or have closed. So whenever a company makes an inquiry, such as when you apply for credit, it will appear on your credit report.
Taking on more credit could, initially, could mean your credit score goes down. But as you continue to manage your finances well and keep up with repayments you should see it start to get better. Some credit cards even say they can help you to build your credit score.
In the UK the three leading credit referencing agencies that calculate credit scores are Experian, Equifax and TransUnion. Each agency calculates your score in slightly different ways, so the figures won’t be identical. But, whichever agency you use, the bigger the number, the better your score.
How your score can save you money
It’s always a good idea to find ways you could be saving yourself money. It’s especially important now as we’ve just narrowly avoided a recession, Inflation is still high and energy bills remain expensive as the cost of living crisis continues.
Improving your credit score can give you more financial options and help your money go a bit further. Here’s how a good score can make a difference:
You could be offered lower interest rates
If you have a good score, you’re more likely to be offered more favourable interest rates on any loans or credit cards you take out. This is because a good score is evidence that you can make the repayments on time, which means you’re a low-risk customer for lenders to give credit to. Lower interest rates mean you’ll pay less interest if you need to spread your repayments.
You can shop around for the best deals
As a good score is an indicator that you’re good at paying your debts you can get pre-approved for credit before you apply. This lets you shop around without having to commit or impact your credit score. Eligibility checkers for credit cards and comparison websites are the easiest way to see what offers are available to you.
Higher credit limits
Your score shows that you’re financially secure and creditworthy. So, lenders may be more willing to lend you more money. This could be credit cards with higher credit limits, or the offer of a higher limit on cards you currently hold. Having a higher credit limit reduces your debt-to-credit ratio, which is the amount of credit you’re using on your credit cards compared with your credit limits. This can be useful when you apply for other types of credit as lenders look at this ratio to see how well you manage your finances.
Having a good score can save you money in the long run. Take the time to see if you can make improvements to your score and then look for opportunities to make savings.