Understanding Your Credit Score and the Benefits

Credit score

Financial institutions and lenders use your credit score as the measure by which to establish your financial health and creditworthiness. Obviously, from a lender’s point of view, the worse your credit score, the more risk you represent. Healthy credit is not the only factor financial institutions will take into consideration, but it is a big contributor to whether or not you will be approved for any type of loan or credit.

The first thing you should do is check your credit history to assess your situation before applying for credit. You can easily do this with a free online credit report. Once you understand your situation, be honest and upfront with your lender.

There are many reasons to start building a score today, here are just two examples of the benefits that come with good credit.

1. Lower Interest Rates

An outstanding benefit of a good credit score is lower interest rates on your loan. Of course, it is still advisable to shop around for the best interest rate, but most lenders will offer you the best rate options available based on a good credit score history.

Whether you are looking for a personal loan, student loan, credit card, or mortgage, your credit score will have an impact on the interest rate charged. The benefits are clear, a good credit score could save thousands in the long run, and the lower your interest rate, the faster you could pay off a balance.

Calculating interest rates
Source: Pixabay

2. Applying for a Mortgage

When processing your mortgage application, the first thing a lender will do is complete a credit check. As outlined above, a bank will determine how high your interest rate will be but also the amount of deposit payable depending on your credit score.

Online independent mortgage brokers are a great option when trying to secure a mortgage, they will align you with the right lender to fit your credit score and individual circumstances. With an online mortgage broker like Trussle, you can easily calculate how much you can borrow for either a mortgage or to remortgage and get expert advice all for free.

Applying for mortgage
Source: Pixabay

How Can I Improve My Credit Score?

Improving your score requires some time and patience but will be well worth it in the end. First, try to pay off any existing debts or at the very least reduce debts as much as possible. Second, avoid applying for any new credit, including credit cards, personal or car loans, etc. Lastly, but most importantly, get a handle on your day-to-day expenses, keep track of all your monthly outgoings, and set alerts and automatic payments for all your bills.

In conclusion, if you are contemplating applying for credit it is advisable to be patient. If you build and maintain a good credit score, it can really pay off in terms of lower interest and mortgage rates but also many other benefits such as better insurance rates and more negotiating power.