Is Your Credit Score That Important?

We often hear dire warnings about how our credit score can affect our ability to get credit cards, loans and mortgages. Many people, though, don’t understand what all the fuss is about. Therefore, you must ask yourself the question: is your credit score that important?

First of all you should understand what your credit score actually is. Your credit score is, quite simply, a method by which lenders can assess your credit history and current credit situation. People who have, in the past, exceeded their limit on credit cards, defaulted on loan payments, missed mortgage payments and made any number of other financial mistakes will tend to have a poor credit score. This is also known as having ‘adverse credit’.

Conversely, people who never miss loan payments and have never gone over their credit limits will tend to have a good credit score. It’s as simple as that. Your credit score is simply a measure of how responsible you have been with your finances. Lenders can use this information in deciding whether it is worth the risk of lending money to you. So, the question again: is your credit score that important?

The answer, of course, is yes. Your credit score is very important. Without a healthy credit score you may find it difficult to get credit cards, a loan for a new car or a mortgage on a house. Often, people with poor credit are forced to take loans, mortgages and credit cards with high interest rates, as these are the only things lenders will allow them to have. Unfortunately, because the interest rates are so high people often find it difficult to meet the repayments. If they can’t make the repayments their credit score will dip even further. It’s a vicious cycle.

The best advice I can offer to people with a poor credit score is this: make sure that you only take credit if you know that you will be able to make the repayments. Short term improvements in your finances may lead to long term difficulties with your credit if you can’t afford to repay that loan. Once you borrow an amount that you can afford to repay, set up automatic payments to cover the bill so that you don’t forget to pay on time. If you can keep making the repayments - on time and in full - your credit score will gradually improve, allowing you to get better finance with lower interest rates in the future.

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