It does not matter how old you are, what job you do, or how much money you have in the bank, your credit score is something you need to be concerned about. After all, your credit score will have an impact on your ability to secure financial products, such as credit cards and loans, as well as the rates that you will get. The trouble is that a lot of people do not understand how their credit report works. They simply assume that they will have a good credit rating because they have paid all of their credit card bills on time or they don’t have a credit card. It does not work like this. With that being said, read on to discover some of the important things you need to know about your credit score.
There is not a singular credit report
The first thing you need to be aware of is the fact that there is not a singular credit report that all business and organisations use. In fact, there are many different agencies – just to confuse matters! Nevertheless, there is no denying that Experian and Equifax are two of the most commonly used. Both companies offer a free demo service, but you will need to pay a monthly fee if you are to see your credit report in full. This means you will see everything that is featured on your credit report, as well as the negative and positive factors influencing it. Both agencies also provide personalised advice on loans and mortgages too, so it is worth investing in at least one, especially if you are looking to improve your score or secure an important financial product in the future.
Never having a credit card is not good for your credit score
A lot of people assume that they have an amazing rating because they have never taken out a credit card or a loan. In fact, if this is the case, it is likely that you have a fair score at best. You could even have a poor score. This is because there is no financial history for credit agencies to base their decisions on. They cannot look at whether you have paid credit card companies back in the past because you have never owned a card. How are they supposed to know if you are someone credible to lend to? A good score is for an individual that has credit cards but manages them and does not rely on them. If you are thinking of getting a credit card, but are unsure about the interest rates and how much you will pay, then you can check this using a credit card interest calculator, with a company such as SoFi.
The number of applications you make matters
When looking for a credit card, a lot of people make numerous different applications because they want to see if they are accepted. They will then choose the best company from those that have accepted them. While this sounds logical, it is not a good way to go about it. This is because every application shows on your account. If you have made more than one credit card application within the past six months, it will have a negative influence on your score. This is why it is so important that you read more on not only the best cards that are available but the cards you are most likely to be accepted for. You can do a ‘soft search’ – this lets you know whether or not you are likely to be accepted before you make an application. These searches are very useful because they do not show on your credit report and, therefore, they make sure you do not waste your time applying for a credit card you have little chance of being accepted for.
There are many factors that influence your credit score
There are many different factors that influence your credit score. As mentioned, the number of credit applications you make does have an impact. In addition to this, there are other influencers. This includes the percentage of your available credit you are using – anything under 33 per cent is great. This also includes the average age of your credit accounts (the longer the better), and the highest amount of credit available to you on the one account (again, the higher, the better).
Someone else’s credit score can have a negative impact on your own
A lot of people do not realise that their financial associations can impact their own credit score. But what does this mean? Well, let’s say your husband has a poor credit rating because several years ago he filed for bankruptcy. Will this impact you? It depends. If you and your husband do not have any joint accounts or shared financial products, it will not have an impact on you. Nevertheless, if you and your husband have taken out loans and credit cards together, meaning you have a strong financial connection, his credit rating could have a negative impact on your own.
Your income does not impact your credit score
It does not matter what salary you are on or how much money you have got in the bank. Your credit score does not take any of this into consideration. You could earn £15,000 per year and you could still have a better credit rating than someone who earns £150,000 per year. It is all about paying your debt repayments on-time and showing that you do not rely on credit heavily.
Hopefully, you now have a better understanding regarding your credit report and your credit score. It is important to know what influences your credit score, as well as how you can maintain a good score. If you follow the advice that has been provided above, you should be able to continue to improve your score and keep it at a good level. It is critical to remember that this is all about showing lenders you are someone credible to lend to – it’s not about the money you have or the income you make.