Times are hard for the average family at the moment, as a once-in-a-generation cost-of-living crisis deepens across the country. Big ticket purchases are harder than ever, whether first cars or first homes – in more than one way. Not only is money tighter, but more people are relying on credit for key things. Without due care, this can lead to low credit scores and an inability to access the most basic of financial resources.
What is a Credit Score?
A credit score, simply put, is a method of quantifying your history of managing debt and other financial obligations. Three independent credit reference companies operating in the UK, each of which has its proprietary methods of calculating your credit score – illustrating the essential fact that your credit score is not a central, official metric.
Rather, it is a metric utilised by banks, lenders and credit vendors to evaluate how effective you will be at holding to repayments and finance plans. In this way, your credit score becomes uniquely important to the success of mortgage applications, your access to financing plans and even your ability to open new bank accounts.
Having a Poor Credit Score
If your credit score is low or ‘poor’, then the credit reference agency that has evaluated your financial history will have discovered information that indicates prior difficulties in handling finances, or future difficulty in making repayments. A poor credit score can result from something as simple as the late repayment of utility bills, or the non-payment of credit card debt.
It is also worth noting that a low credit score can result from having little to no financial history whatsoever. If you do not have a history of taking and repaying loans or making timely payments concerning a financial commitment, there is no evidence to suggest you would be reliable – giving lenders reason to consider you a financial risk.
Improving Your Credit Score
But credit scores are not set in stone, and there are several ways you can work towards improving yours to increase your chances of receiving a favourable credit agreement in the future. The first thing you should aim to do, though, is to clear any outstanding debts.
Saving alone often isn’t enough to do this in a swift time frame – especially if you have more than one debt. However, there are loans designed specifically for people with poor credit ratings, which can be used to consolidate your various debts into one place. This can simplify the paying-off process, while actively improving your score by settling the majority of your outlying debts.
For those with no credit history whatsoever, the solution to getting a good score can often seem counterintuitive. You should put yourself into debt with an organisation, whether through using a current account’s overdraft or opening a credit card. By using and repaying credit, you are creating a positive credit history and ensuring a good credit score in the process.
