If you have a low credit score, you shouldn’t accept the situation and do nothing about it. There are reasons why a good credit score is beneficial, as we explain below.
Why do I have a low credit score?
You can check your credit score with your bank or with one of the main credit reference agencies. If you discover it is low, there are possible reasons for this.
It could be low because you have missed credit card or bill payments. It might also be low if you have a lot of debt.
You can improve your credit score by paying your bills on time and by clearing your debt. Your score might be reduced further once you pay off your loan or write off debt but this will only be temporary.
Why should I improve my credit score?
There are advantages to having a good credit score.
#1: Loans with the lowest interest rates
When you take out a loan for a large purchase, such as a house or a car, your application might be declined if your credit score is low. If you are offered a loan with bad credit, you won’t be offered the lowest rates of interest so your monthly repayments will be higher.
If you have a good credit score, you’ll be able to access the lowest interest rates available, so you will have smaller monthly repayments to make and a better chance of paying off your loan sooner.
#2: Higher borrowing limits
When considering how much to lend to you, banks and other lenders will consider both your income and your credit score. If you have relatively high earnings and a good credit score, your borrowing capacity will be increased.
But if your income is low or if you have a poor credit score, there will be limitations on how much you can borrow.
#3: More housing options
A good credit score can improve your chances of being accepted for a mortgage. As mentioned, it can also increase your borrowing ability so you will have a wider choice of properties to choose from.
A good credit score can also be beneficial when you’re looking for a property to rent. Most landlords look at credit scores when screening prospective tenants so your chances of being offered a rental property will be improved if you have a high credit rating. If your score is low, this could be linked to your ability to make payments on time, so landlords will understandably be cautious.
#4: Lower insurance premiums
Lower insurance premiums are given to those with a good credit score so this is another reason why you should take steps to improve your rating.
If your score is low, your premium will go up and consequently, so will your insurance payments.
How do I improve my credit score?
As you now know the reasons why you should improve your credit score, you should take steps to improve it.
Check out our guide to increasing your credit score for some helpful information.