How Credit Scores Affect Borrowing Costs

If you want to make sure that you qualify for the highest possible rates on your loan and credit cards, then you’ll need to make sure that you have a good credit score. It’s not enough just to build a good credit history, you also need to ensure that your credit score stays good too! Banks and various other financial companies will use a range of information to determine what your credit score will be. This credit score will determine what kind of interest rates you will be given when you come to borrow money.

Credit scores are often based on the information you put on your application form, as well as data that the lender already has about you based on previous accounts you have with them. Additionally, your credit score will show all of your borrowing behavior as it’s been collected by one of three credit agencies.

Getting a Better Credit Score

There are plenty of different ways that you can improve your credit score, or ensure that your credit score remains in good standing, for instance, your credit score will be better if:

You are on the electoral register
You have your own home, or you’ve been living at the same address for more than a year.
You aren’t connected to anyone with a bad credit score through a joint bank account or mortgage
You have a good credit history because you have repaid your other agreements regarding credit on time, such as your electricity and gas bills
You have evidence of financial stability in the form of a regularly paying job

Why a Bad Credit Score Damages your Borrowing Abilities?

If you have a bad credit score, this could mean that you’re charged higher than usual rates of interest, given a smaller limit on your credit, or that you’re completely rejected when it comes to applying for a credit. Remember that a lender doesn’t have to give you the interest rate that they have advertised, or what you see when you visit comparison websites. Instead, this is a number that’s known as the representative APR, and it has to be offered to just over half of the people that apply for the product.

Remember that your credit score doesn’t just impact your abilities to apply for a new loan or credit card either. Sometimes, credit card and loan providers will frequently take a look at their customers and apply policies called rate for risk pricing. This basically means that if you start to fall into a group because of your credit rating, and the lender finds that the group in question is high risk, then your interest rate might begin to rise.

It’s facts like these that make it so important to ensure that you keep a good credit rating even if you aren’t trying to borrow extra money from anyone.

The Pledges Offered by Credit Card Providers

Todays’ credit card providers have promised that they will not increase anyone’s credit card limit within the first 12 months of borrowing so long as the terms and conditions of the contracts are not breached. After this time it can only increase rates once every half a year. Additionally, credit card providers will need to tell you why your rate is being increased. Credit card providers will also give their customers at least a period of thirty days of notice when it comes to interest rate increases. This means that you should have plenty of time to pay off your full amount of debt.

Credit card providers have also promised to give all customers sixty days to close their accounts and clear the amount of debt that they have at the older interest rate when they are changing interest rates. However, this means that you will not be able to continue spending on your card, but you can continue to pay off the debt without moving to the higher rate. Additionally, credit card providers will not increase your interest rate if you have a problem with debt, so it’s worth talking to a debt counseling team if you have a problem with making repayments.

If Your Interest Rate Increases

If you end up getting a higher interest rate because you forget to make a payment on time, it’s worth calling your lender and explaining why you missed your repayment. Most of the time, if you have a good history for managing your money properly, your credit company might relent and let you go back to your old interest rate.

Additionally, if you’re worried about a changing interest rate, you could always try switching to a different card that offers an interest-free period with balance transfers. This might help you to clear the outstanding balance that you already have. However, if you have a very bad credit score you probably will not be able to qualify for these cards.

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