For the majority of us at some point in our lives, we will apply for credit. Whether it is a mortgage, a loan or a credit card, we will approach a lender, fill out a form or two and walk away with a smile on our faces.
It is not always that simple, as many know too well. The process of applying for credit is generally built around how well you fare in a credit check by a lender. The higher your credit score, the better chance you have of getting that loan and the best rates possible when it comes to paying it back. There are a number of people unfamiliar with what affects their credit scores and how they are calculated. Why does checking your credit score lower it? What else can harm your score? We explain below.
What makes up my credit score?
There are a number of factors which determine your credit score, and are generally comprised of the following:
- Your history of repaying creditors
- How you use credit and how often
- How long you have been applying for credit
- The different types of credit you have applied for
- The number of enquiries made against your credit history
The 5 golden rules for improving your credit score
In order to increase your likelihood of obtaining credit and getting the best terms for any loan, credit card or mortgage you apply for, ensure that you are doing everything within your power to come across as a responsible consumer to lenders.
Even if you have struggled in the past or are struggling now, your credit score will change in accordance with your behaviours. It is not set in stone, and will improve when you follow rules such as these five below:
- Always try to pay bills, loans, credit cards or any other type of repayment as early as possible
- Know that taking out as much credit as you can may be detrimental to your credit score and not helpful
- Always keep details such as addresses up to date with credit agencies, and consider registering on the electoral roll
- Do your best to be as frugal and responsible you can with overdrafts or credit cards
- Monitor your credit score, and query any inconsistencies or errors as soon as possible
Responsible lenders are required to do their homework on any borrower, and your credit score acts as a convenient way for them to assess your reliability as a consumer. The higher your score, the more creditworthy you are, based on the factors above. While student life, having children or being irresponsible as a younger person are all contributing factors to why we may refuse to check our credit score, the good news is that it is never too late to turn things around.
For the majority of people, none of us will start off with a perfect credit score. As with any behaviour, the numbers or metrics used to assess our attitudes tend to fluctuate from person to person, according to various contributing factors. By understanding our poor approach to credit and how we are perceived by lenders, we can change how they consider us.