Does your credit score matter?
A credit score may not be the first thing that comes to mind for many consumers when considering their financial future. For some people, it may not even be something they have ever studied.
Credit scores, however, can have a major impact on the prospect of borrowing to buy big-ticket items like a car or house. They can also be important for areas such as employment opportunities, as well as obtaining consumer goods such as a cell phone.
With that in mind, here’s why now may be the time for all consumers to take a closer look at their credit score.
What is a credit score?
A credit score provides insight into an individual’s level of risk from a lender’s perspective. It focuses on past borrowings and whether a consumer represents a good credit risk with respect to future borrowings.
For example, someone who has borrowed money for a long time and pays it back on time and in full may have excellent credit. In contrast, someone with a patchy history of borrowing more than they can afford, with payments late or not made at all, may be seen as a riskier prospect by lenders.
Impact on obtaining credit
Have a good credit score can affect an individual’s life in various ways. Consumers with good credit may not only find it easier than those with poor credit to access credit, but they may also be able to obtain preferential rates.
For example, a personal loan may be advertised at an interest rate of 3.5% per annum. This rate, however, may only be available to the majority of successful applicants. Those with the highest credit score may be the ones offered the advertised rate, as they could offer a lower risk proposition to the lender.
Wider implications
In addition to affecting an individual’s ability to get credit at a favorable rate, credit ratings can impact job prospects. As part of evaluating job applications, employers often perform a credit check on potential employees. Although a job seeker could refuse this request, it could lead a potential employer to assume that the individual has a bad credit history. The employment prospects of potential employees with poor credit ratings could be compromised in some cases.
Credit scores are also important for obtaining basic necessities like a mobile phone. Since the cost of the phone is often included in a contract, retailers will need to ensure that there is a good chance that the outstanding amount will be paid over a 12 or 24 month period. People with low credit scores may therefore find it more difficult to obtain everyday items at the prices they are advertised for.
increasingly important
Credit scores are important because they can have a significant impact on an individual’s financial life. With debt levels continuing to rise in the UK, credit ratings look likely to have an increasing impact in various areas in the future. As such, seeking to improve a credit rating could become an increasingly attractive long-term pursuit, with the potential to provide better access to credit at more favorable rates. It can also have wider repercussions, such as on job opportunities and obtaining everyday items. Therefore, now might be the time for all consumers to focus more on their credit score.
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