1 week Ago By [email protected] (Samantha Leathers)
A credit score is a vital personal finance tool that will be used by institutions to see how well you handle your money and repay your debts. It can be a particularly make-or-break figure when it comes to any type of loan, from phone contracts to mortgages and personal loans. As a result, having a subpar credit score will see some people having to pay thousands of pounds more in interest than their peers with good or excellent scores.
Totally Money found that people with a bad score could have to pay an additional £6,670 on a £5,000 loan. Excellent credit scores not only provide access to better interest rates but also allow people to borrow more money with better deals and may even reveal products that those with poor scores won’t be able to see at all. Another worrying figure TotallyMoney discovered is that only one in 4 people have checked their credit report in the last 4 years, 32% of which found a mistake that had been affecting their score and likely saw them paying more for no reason.
Andrew Hagger, Personal Finance Expert Moneycomms.co.uk , who carried out the calculations, warned: “Having a (poor credit score) can lead to a spiralling debt situation that’s difficult to escape from unless you’re very disciplined and able to manage the higher monthly costs while your credit score gradually recovers.
If you’ve had credit issues in the past, a lender will consider you higher risk and price their products accordingly — it may seem unfair but it’s the harsh reality when it comes to borrowing money.” There’s a range of obscure things that affect a credit score and can help uplift it, some of which have nothing to do with the money you have. Registering to vote can improve your score by confirming your name and address.
Confirming and correcting other personal details can also add a little boost to your score. One of the most detrimental things for your credit score is not having any credit history and someone who has never used a credit card, payment plan or contract are likely to suffer from this problem. Getting a mobile phone contract can be a simple way to establish this without embarking on a major financial venture.
Paying bills on time, avoiding coming close to the limit on your credit cards and checking your score regularly for mistakes can easily build-up your credit score and give you access to much-needed deals or sweeter interest rates. Alastair Douglas, CEO of TotallyMoney shared his own checklist for a credit report scrub-up, particularly if you’re planning on applying for loans that will put it to use. He shared: “The first steps you should take before applying for any borrowing is to check your credit report, make sure everything is up to date, and fix any errors.
While some websites might charge you to do this, you should never pay, as the data is yours — so find an app which will let you do this for free. “You should also spend some time shopping around for the best deal. This means going to different banks and comparison sites, and checking your eligibility before finding the best offer for you.
And remember, make sure you can afford the repayments, and try to never borrow more than you need. “Some lenders are now using open banking data instead to make their decisions. This means that if you give them access to your data, they can make a more accurate assessment of your ability to repay the debt.
That way, it can be more personalised, and you might even be able to secure a better rate.”.
