‘Here she goes again.’ – I hear you say. Crooning about my credit score and how it is time to do something about it.
You are right I’m on the go again. After all, I did promise you a series of articles on investing. Let me tell you, investing thirty minutes in checking your credit score and taking the steps necessary to improve it, is one of the best investments you could make in such a short time. These thirty minutes invested in paying attention to your credit score will save you thousands of £££s and make seven important areas of your life much easier to tackle.
Before we go any further, let me ask you a question:
How many offers for low interest rate credit cards did you receive last week?
Your answers would likely vary between ‘none’ and ‘several’; it depends.
It mostly depends on whether or not financial organisations consider you good enough risk to throw offers for cheap credit at you and hope that you’d forget when the low interest rate expires. How they assess whether you are a worthwhile risk? By checking your credit score.
We get a lot of offers for cheap borrowing. That is, we receive these offers now. Still, I do remember the time when I applied for a 0% credit card and was rejected; it was only five years ago.
What has changed?
Five years ago we were still paying off debt. Since then:
- We paid off a rather large amount of debt in record time.
- We use three credit cards and these are paid in full every month.
- We have a perfect credit score of 999 each (this is the highest you could get).
Having top-notch credit score, I believe, is most important today. Yes, we could debate about the virtues of the methodology; we could question whether it is right to found important judgement and decisions on a suspect number.
This won’t be productive: your credit score is an important measure of how ‘credit worthy’ you are and nothing will change that anytime soon.
Instead of questioning, do something about it. Two things you can do easily in the next 30 minutes are:
- Check your credit score. Once credit scores started being used by major finance industries these were bound to become ‘big’ business. Hence, there are many companies that offer this service. I believe that it’s best to go with the established companies but you can learn more about how to check your credit score, for free, on the Money Saving Expert website or on Clear Score.
- Make a list of actions that will help you improve it. There is much written about ways to improve your credit score. Again, I’ll go with an official service – the Money Advice Service in the UK. Just avoid paying to companies that promise to improve your credit score; you don’t need to pay for something you could easily achieve using free advice.
What makes this effort worth it?
Here are seven areas of your life that are exactly as good as your credit score is; this means that the higher your credit score the better you’d do in them.
#1. Good credit score makes it easier to rent
Landlords are using credit scores to select their tenants and you’d better believe it. This means that a higher (or high) credit score gives you much more choice when it comes to renting and keeps you away from the ‘darker’ side of the accommodation renting business.
So, if you wish to rent a nice house or apartment, in a great part of town start working on this credit score. You will still have to pay a deposit but it may be smaller than if you have no credit history or a low credit score.
#2. Good credit score will get you approved for mortgage
Owning our house is a very basic desire that links to the craving of security and feeling safe. How I remember dreaming of having my own home even if it were the smallest on this planet. (As it happens, I ended up with a large house but you cannot know what is in your future; you can only work towards achieving your dream.)
Buying a house, or an apartment, is usually done using a loan from a bank (or other financial organisation) known as a mortgage.
While there was a time, before 2007, when getting a mortgage was easy (and risky for everyone concerned) now the regulations in the UK have become stricter. To get approved for a mortgage you need a credit history and a good credit score (apart from having secure income and meeting a score of other conditions). Without it the chances of being approved are slim.
This is why, I have been telling our grown up sons to get credit cards, use them and pay them in full every month. They still haven’t done it. So, no home ownership for them, I suppose. Not yet anyway.
#3. Good credit score means lower interest rate on mortgage
Having a good credit score will also affect the interest rate that you’d be offered on your mortgage (and many other loans). On large borrowing, which a mortgage always is, a relatively small difference in interest rate makes a very large difference in repayment.
Couple of weeks back we changed our mortgage to a lower interest rate one (from close to 4% to approximately 2%) and this will save us over £6,000 per year. Think about it! (And get on with checking your credit score and setting in place the ways to improve it.)
#4. Good credit score gives access to low interest rate credit cards
Yep. I already told you about this one. Today, John and I don’t even have to ask for 0% credit card deals – banks sent them to us every week.
Our sons, on the other hand, will have to get a ‘credit builder’ credit cards at 27% interest because they have no credit history.
#5. Good credit score means cheaper insurance
Most insurance companies use your credit score. They mainly look for CCJ (county court judgements) when setting the rate. While your credit score may not affect directly the basic premium that you are offered, it will certainly affect the interest you are being charged were you to pay in monthly installments.
#6. Good credit score means no security deposit on utilities
Utility companies in the UK have been found to carry out routine credit checks on their customers. If you have a good credit score you are likely to get on a better tariff, you are not going to be asked for a security deposit and you are not going to be offered prepayment meter.
I know; this means that if you have had money trouble and your credit score is low your life becomes so much more expensive. These things are not cheap; our sons still pay much more that we do to heat badly a house that is a third of the size of our house.
#7. Good credit score means cheaper car leasing
You know that here, on The Money Principle, we believe that leasing a car is not abomination and that it can make good financial sense (depending on circumstance, of course).
You may think that you cannot lease a car with low credit score, right? Wrong. You can lease a car; it is just that it will cost you more than it would cost someone who has a good credit score.
When we think about investing we rarely think about our credit score. Still, investing thirty minutes now in checking your credit score, and setting in motion the actions that will help improve it, can save you thousands of pound every year; year after year.
Correct me if I’m wrong but this is seems like a very worthwhile investment to me.