Everyone is likely to need access to credit at some time in their lives; whether it is for a loan for a major purchase such as a home or a car, or even to be able to respond to an unexpected emergency. For everyday essentials or treats, credit cards offer the convenience of not having to handle cash and allow a period of time to defer payment for purchases. When you want to apply for credit, potential lenders score you on how good a risk they think you might be.
Having a good credit score gives you many advantages
- You will have access to a wider range of credit products likely offering lower interest rates and fewer charges compared to the reduced range of borrowing facilities available to a person who is a poor credit risk.
- You may be considered a lower risk in general by insurance companies. This will have a direct effect on your motor, car and life insurance premiums.
- Similarly potential employers will sometimes check a candidate’s credit score to determine if they are solvent. This is particularly important when applying for a job in the financial services industry or related fields.
- Landlords may also carry out credit search checks to determine reliability and ability to pay. People with adverse credit histories are more likely to be asked for higher deposits or only offered short term rental contacts.
- Being able to purchase goods using a credit card rather than cash offers further benefits:
- a. The law says that for purchases made using a credit or store card which cost between £100 and £30,000, the card issuer is equally liable with the supplier if you do not receive your goods or if they are faulty.
- b. Some cards are cheaper to use abroad than using a bureau de change for local currency.
- Some cards offer free extended warranties on your purchases.
- You can collect and redeem reward points or air miles.
- Conversely, those people with low credit scores are most likely to suffer certain disadvantages: Accounts may be subject to higher than normal interest rates, or there could be a limit imposed on the amount of the borrowing facility. Worst of all, access to credit could be refused altogether.
How to find the best deals
To research the best deals available for a variety of credit related products such as loans, mortgages and credit cards use a comparison site such as www.soswitch.com. Before you apply for these types of products however it is advisable to check out your credit rating. If you apply for credit and your application is denied, beware of making repeat applications because each time you do this, it is logged on your credit history and can indicate to a potential lender you are a poor risk. So, first check your rating and look for any anomalies so you can rectify them. You can do this at no cost, for example CreditExpert from experian.co.uk offers a 30-day free trial and you may cancel your membership at anytime during the trial period.
By Rachel Ford and Debt Advisory Line – Rachel is an experienced financial blogger and IVA expert who writes on a wide range of financial topics.
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