Your credit score is an at-a-glance figure that gives an insight into how responsible you are with money. It’s often a key component of your individual financial goals.
As well as working hard to remove your debt, for many, seeing that all-important number grow is a sign of real progress with how you manage money.
And with good reason. Your credit score represents your credit report, which is one of the key things lenders (and a few others) look at. And these organisations are the gatekeepers to several life-changing decisions you could be making.
But just how much good can come from a high credit score? Here are seven positive benefits it can open up for you in borrowing and beyond.
1 - You can unlock more sources of credit
Securing finance can help you to make empowering decisions. Whether getting on the property ladder, starting your own business or planning a once-in-a-lifetime trip, access to borrowing can be crucial to achieving these goals.
Some options may then be out of your reach if you have a low credit score. Whilst there are mortgages available for those with bad credit, you’ll have limited choices which may have higher interest rates (making them out of your price range). You may want to start a new course to increase your job prospects but the price of borrowing to fund it is beyond your budget.
A positive credit score means you’re more likely to access pretty much any form of finance from any lender. This opens you up to much more attractive deals with added perks and benefits. Some exclusive credit cards are equipped with desirable extras like reward facilities and air miles. These are usually only available for those with a high credit score.
Remember that your credit report is only part of what lenders look at. They will all also have their own criteria that they look for in prospective customers. This can range from anything like affordability (which is how much you can afford to borrow and repay) or specific finance requirements (such as being a homeowner for secured loans).
2 - You’ll pay less interest
Before deciding whether to lend you money, a lender will try to predict your future behaviour. They do this to assess the risk of you not fulfilling the agreements of borrowing. This helps them decide not just whether it’s a yes or no, but also the amount of interest they will charge you.
Generally speaking, a high score translates as less risk for lenders, and the lower the risk then the lower the interest rate. Depending on how much you’re looking to borrow and for how long, a lower interest rate could save you £1000s.
3 - You can save money on your car insurance
Your car insurance premium is based on a few different things. These factors include your previous claim history, how long you’ve had your licence and any past misdemeanours behind the wheel. If you’re looking to pay it monthly then it will be viewed as a credit agreement, with an APR to boot. This means your credit score can influence the cost.
Insurance providers will run a hard check on your file and this will then feed into the decision they make about pricing your monthly premium. As “statistically people with low credit ratings are more likely to make car insurance claims” this could mean you pay more.
4 - You have more choice on your mobile phone contract
Mobile phone contracts can also be a source of credit. If that state-of-the-art handset is free with a contract, the price gets tacked onto your monthly agreement. This means you’re borrowing money to pay for it.
Like other lenders, mobile phone providers will also run a credit check before offering you certain deals. If you have bad credit history it could mean you’re refused a mobile contract, and you might be offered a pay-as-you-go phone instead. By contrast, if your score is sky-high then you should be approved for a contract for pretty much every phone on the market. Think how smug you’ll look in all those selfies now.
5 - You’ll find it easier to rent a property
Many landlords will run a credit check before signing you up as a tenant. If they don’t like the look of your credit history then they could turn you down or request that you add a guarantor, which might not be ideal for you.
Of course, a good credit score eliminates this risk. This stops you being reliant on other people and paves the way for you to rent that swanky dream pad you’ve had your eye on.
6 - You get more negotiation power
A higher score gives you the power to negotiate with both prospective and existing lenders alike. This could include anything from increasing your credit card limit to accessing a higher quality bank account.
As your score rockets, you can feel confident about asking for more and more from your money relationships. And getting what you want.
7 - You can work in more industries
The final benefit regards your career. More and more employers use credit checks as part of the application process when taking on new staff. Law and finance companies are legally bound to do so, but lots of other sectors will too. They do it to confirm your identity, but also to check your trustworthiness with money if that is a key requirement of the position.