From getting a low-interest personal loan to fetching a cheap rental, a good credit score helps you at each stage of your life. Your credit score reflects your financial reliability. If your payment history shows pending debts, a long and inconsistent employment history, and frequent changes to your residential address, your credit score may be low.
It may thus affect the new job, rental, and even the dream of settling overseas. Therefore, if you want to grow financially and achieve your lifestyle dreams, you must have a good credit score. The blog states the reasons why having a good credit rating is important.
What is a good credit score in the UK?
There is no single definition of a good credit score. This is because different credit agencies (Equifax, Experian, and TransUnion) have their own standards for defining a good credit score. For example, Experian provides a credit score on a scale of 0-1250. Here, a good credit score is anywhere between 861 and 1000.
Similarly, Equifax rates a good credit score to be between 531-670, and according to TransUnion, it is 604-627. Basically, the higher the credit score, the better.
Loan providers, employment companies, and service providers view your financial management as responsible and punctual. It means you pay less in total interest on personal loans, credit cards, and rent, and you also get better employment opportunities.
How does a good credit score differ from a bad credit score?
A good credit score differs from a bad credit score as it helps you fetch better interest rates, grab a good job and start a business with instant finance.
However, with bad credit, you may need to wait and improve your credit score before you can get a loan. Even if you get extremely bad credit loans in the UK, the interest rates and high APR (Annual Percentage Rate) make the loan costly. Here are other major differences:
Parameters | Good credit score | Bad credit score |
Experian credit score range | 861-1000 | 0-560 |
Mortgage approval odds | May get instant approval with high street and reputed loan providers at lower interest rates | One may face instant rejection from the mainstream mortgage providers. The borrowers need to provide a high deposit (10-30%) to qualify.
|
Credit limits | Individuals with good credit scores get higher credit limits. | Individuals with good credit scores receive higher credit limits. It may prevent one from getting new credit cards or loans. |
Financial flexibility | A good credit score makes it easier to get a gas pipeline, telephone connection, mobile contract and even a better job and rental opportunity. | Most service providers view bad credit negatively, and therefore, basic services can be costly for a person with a bad credit history. |
Why is it important to have a good credit score?
A good credit score helps you get accepted for affordable credit cards and loans. It helps you save money on interest and the total amount payable on the loan and other credit facilities.
Thus, it empowers you to achieve your life goals without spending much or taking on expensive debt. Moreover, paying the dues on time also helps build a positive credit score and reputation with lenders. Here are other reasons why it is important to have a good credit score:
1) Helps you save money significantly
Yes, you can save money, especially on long-term loans like mortgages and car loans, with a good credit rating.
For example, if you secure a mortgage on 1% less interest rate on a £200,000 mortgage, for a 30-year loan term, the total interest payment with 6% will cost £231,500. However, if you take the same loan at an 5% interest rate, you pay just £186,500. Thus, you can fairly save £45000 on just interest until the loan term!
2) Better insurance rates and discounts
Alternatively, having a good credit score may help you purchase your dream car with affordable insurance coverage and access to different payment options. It grants you more flexibility in choices and helps you achieve your dreams affordably.
3) Get the upper hand in negotiation
Individuals with a higher credit score are more trustworthy with their finances. This automatically grants you the upper hand in negotiating the loan or car finance deal. You can even negotiate on a mortgage.
You just need to reveal how you managed the finances in the past. Provide a quick glimpse of your income, improvement in one and well-managed essential expenses. It may help you secure credit cards and loans at cheaper rates and better terms.
Q Step 1- Identify how much you need
Q Step 2- Identify how much you can repay comfortably
Q Step 3- Determine the change in your income (or income increase)
Q Step 4- Provide proof of how you have managed credit in the past. Reveal bank statements, payment history, or any other heavy loans that you just cleared
Q Step 5- Understand the best rate you can get
Q Step 6- Provide an estimate of how much you can pay to the creditor.
4) Qualify without staking your assets
Most individuals fear providing assets as security to get a loan. In the case of bad credit history, the loan provider may demand one. However, individuals with a good credit score do not need to worry about that.
You may get a personal loan without pledging your assets as collateral. It thus helps you meet your life goals (small and bigger) without the fear of losing the asset. However, you need to make the regular payments on time to retain the credit score. Moreover, you don’t pay more in total on the loan in comparison to an individual with a bad credit score.
5) May open a new bank account (with the best interest)
When you want to open a new bank account, the bank will analyse your payment history. They conduct a basic credit check to review your finances and repayment management. Some analyse whether you have multiple overdrafts, accounts with other banks.
They can also see any closed bank accounts (if any). One should not close a bank account, especially if you have a long payment history with it. It may drastically affect your credit score and payment history.
Bottom line
These are some reasons why having a good credit score is beneficial for an individual. It helps you qualify for better interest rates, fetch good employment and rental opportunities. Moreover, one may qualify for cheaper interest rates on a mortgage.
However, your credit score does not always remain the same. It may shift based on your financial management and the debts you take on and pay off. For example, applying for a loan temporarily dips your credit score. But you can regain it by making consistent loan payments.
Ubicación del Autor
united kingdom
