How Important is Your Credit Score?
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It’s something a lot of us are quite concerned with in the debt-free community. I want to put a different spin on it. Presently, we’re occupied with paying off debt and moving away from living a life on credit. Which begs the question: How important is your credit score?
What is a credit score?
Your credit score is there to determine your credit-worthiness. A lender wants to know how trustworthy you are and what the likelihood is of you paying back what you’ve borrowed. But if you’re trying to get out of debt, you don’t want to take on any more. So why is your credit score important?
You want to buy a house
This is by far the most important reason for growing and maintaining a good score. After all, most people will need a mortgage to buy a house, and the better your score, the better your chances of being accepted. It also increases the chance of you obtaining a lower-interest rate on your mortgage.
However, if you’re on a journey to become debt-free, paying down your debt needs to be a priority before you take that next step.
You want to make a rental application
If you don’t already own your house, or if your circumstances change, you may find yourself in the position of needing to move home. If you are looking to move into rented accommodation, you’ll need to pass a credit check to prove your reliability in making your rental payments.
In this instance, it’s vitally important to be aware of your credit score and your likelihood of passing the check. You can check your credit score for free with Experian (Please note the free account is available to UK residents over 18 years of age and is subject to identity checks).
So, what factors result in a low credit score?
What causes a low credit score?
Things like utilising a huge majority of the credit available to you can have a negative impact, as can how long it’s taking you pay the debt off.
Similarly, accounts where you have defaulted will show up unfavourably, indicating that you might be struggling to keep up with your repayments.
Another major factor that can have a serious impact on your credit score is a CCJ. These stay on your credit file for six years, unless paid in full. Even when paid in full, they will still show on your credit file, but marked as “settled”. Of course, it’s better to not get to that point in the first place by taking steps to get out of debt and learning how to budget your money correctly.
Does a good credit score matter?
In my opinion, while you are in the process of paying off your debt, the answer is not necessarily. Becoming debt-free is what matters right now. If you already have debts, it’s likely that you won’t be able to afford the repayments on a mortgage on top of everything else. And you really don’t want to get even further into a debt spiral. If you have a bad credit history and you’re concerned how it might affect your chances of renting a property, it’s best to be honest with the landlord or letting agency as explained here by the Citizen’s Advice.
Concentrate on clearing your debts first. It’s your opportunity to demonstrate your dedication and ability to take control. As you make regular and additional payments, your score will be updated, showing your ability to pay back what you owe.
And you should find that your score will take care of itself.
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