Credit scores. They’re not the easiest thing to get your head around, are they? And if yours is a little on the low side, understanding how it can affect your chances of receiving credit is essential. To help get you up to speed, we’ve outlined the potential costs of having a low credit score.
You’re likely to be charged higher interest rates
A low credit score can lead to lenders charging you higher interest rates on their credit products. This is because a low score could mean that you’re overcommitted or that you haven’t managed your finances well in the past.
It’s also good to keep in mind that if you have a low credit score, you may be charged a different APR than the one advertised. Representative APRs represent the rates that at least 51% of people will get. This means up to 49% of people will get a different rate. So, no matter how high your credit score, it’s always a good idea to check that you’re comfortable with the APR you’re actually being offered.
You could get turned down for a loan or credit
Having a low credit score can sometimes mean that you don’t meet a lender’s lending criteria. When you check your eligibility for finance, a lender will check your credit file. If there’s anything on there that discourages them from lending you money, such as County Court Judgements (CCJs) or multiple recent applications for credit, your request for finance is more likely to be declined.
You might find it difficult to buy products and services
Having a low credit score doesn’t simply mean you’re bad at managing your money. There are multiple reasons why your credit score could be low. A common one, especially for young people, is that you might have no credit history at all.
This can cause problems when you apply to enter financial agreements like taking out a mobile phone contract or leasing a car. Because the retailer will do a credit check on you to see if you’re likely to pay your monthly bill on time, a low credit score can be a red flag.
You may find it harder to get a mortgage
Your credit score isn’t the only thing taken into account when you check your eligibility for a mortgage. However, it can still have an impact. If your credit file indicates you’ve had a few problems managing your money in the past, such as a default or a declaration of bankruptcy, this can influence the mortgage lender’s decision. It can also impact the interest rate you’re offered on your mortgage.
Improving your credit score
The good news is, there are ways you can improve your credit score. If you’ve got little or no credit history, there are certain credit cards that you can use to build your credit profile.
If your credit score is low due to past financial difficulties, you’ll need prove that you’ve now got your finances under control. One way to do this is by making sure you pay the minimum monthly repayments on any debt you owe on time.
For more guidance on boost your credit profile, read our guide on how to improve your credit score. If you’re struggling with your finances, seek free, impartial advice as soon as you can. Visit Money Helper for more information.