What is a credit score?

Credit scores are one of the most important aspects of your credit history and it is based on your financial history. Your credit score is a three-digit number that ranges from "very poor" to "excellent", depending on how reliable you are at borrowing money and repaying it. It can also be used by lenders to determine your eligibility for a specific credit card, loan, mortgage, or service. You can check your credit score for free on Experian or get free access to your credit report from Credit Karma.

Why is it important to have a good credit score?

Having a good credit score opens up many opportunities such as obtaining lower loan interest rates, the best credit cards, housing, and insurance. One of the costs associated with borrowing money is the interest rate, and you frequently receive a rate that is directly correlated with your credit score. You'll almost always be eligible for the best interest rates and pay less in finance fees on credit card balances and loans if you have a high credit score. The less interest you pay, the faster the debt will be paid off and the more money you'll have left over for other expenses.

Borrowers with a bad credit history typically avoid applying for a new credit card or loan because they have previously been denied. However, it is important to note that having a high credit score does not necessarily guarantee approval because most lenders take into account other factors such as your income and debt. A good credit score, on the other hand, increases your chances of being approved for new credit. In other words, you can confidently apply for a loan or credit card.

The amount you are able to borrow is mainly determined by your income and credit score. One advantage of having a good credit score is that banks are willing to let you borrow more money because you've proven that you repay what you borrow on time. With a bad credit score, you may still be approved for some loans, but the amount will be less.

Ways you can improve your credit score

There are many ways you can improve your credit score and one of the main ways of doing this is to build your credit file. Opening new accounts that will be reported to credit agencies is an important first step in building your credit file, as without accounts in your name there is no record of you as a borrower.

Your payment history is one of the most important factors in determining your credit scores, and a long track record of on-time payments can help you achieve a stellar credit score. This is why it is critical that you do not fall behind on any loan or credit card payments, as late payments will generally lower your credit score. Setting up direct debits for the minimum amount due can prevent you from forgetting to make a payment and is usually the best option as long as making that payment doesn't overdraw your bank account. It is important to note that if you are experiencing financial difficulties, you must immediately contact the company you have borrowed from to discuss your options.

Another way in which you improve your credit score is keeping up to date with any bills you might be falling behind on, as this stops you from incurring any additional late payments or late fees which might show up on your credit report. A good way to keep on top of your bills is to track your expenses so that you can see what is going in and out of your account.

It is important to understand that there is no set timeline when it comes to building or rebuilding your credit. It is mainly dependent on the factors that are damaging your credit and the actions you are taking that will determine how long it takes for your score to increase. For example, the actions you take after missing one payment compared to missing several payments over a period of months will subsequently differ.