Most of us will have heard the phrase ‘Credit score’ in the past but you’d be forgiven for not having a clue what it really is or why it’s so important to have a ‘good’ score.
In a nutshell, your credit score is an indication of how financially healthy you are and the potential likelihood of being accepted for a loan, a credit card, a mortgage or a mobile phone contract. Lenders assess your future behaviour based on your past. Your credit score shows how a typical lender views you based on your payment history, applications, the credit you have and more including your income when making their decisions.
Most companies you deal with will share your payment history with credit reference agencies such as Experian, Equifax and Call Credit. When you apply for a loan or mobile phone for example, the lender will check with these credit reference agencies to see how creditworthy you are before agreeing to your application.
If you have a history of missed payments – for example, paying late or not at all – this will result in a ‘poor’ credit score which could put companies off giving you credit or if they do the rate of interest is likely to be higher.