Particularly when you first go freelance, applying for any sort of credit (including a mortgage) can be daunting. All of a sudden your “income” answer isn’t as simple as it was when you were employed and you’ve got more paperwork to contend with.
Of course, your earnings (and the possible variations in them) isn’t the only thing that matters though. Your credit score does too and particularly for freelancers who may be worried about variable incomes on credit applications, paying attention to a credit score is important.
Now more than ever it’s important that we have a firm understanding of our finances. With the rate of inflation soaring and the cost of everything from energy bills to food going up, it’s clear that we are still in the grips of the cost-of-living crisis.
So let’s take a look at credit scores, what they mean and how to improve them.
What is a credit score?
A credit score is a number that tells you how healthy your personal credit file is. This number is usually three digits and it’s calculated by the main credit referencing agencies: Experian, TransUnion, and Equifax. Each agency reaches this number in slightly different ways, but in each case, the bigger numbers are always better.
The credit score indicates how reliable you when it comes to keeping up with repayments, based on your credit history.
The benefits of a high credit score
The higher the number, the more likely you’ll be accepted for any credit applications you make. You’ll also be more likely to be given higher credit limits and a lower interest rate if you have a high score. This is because your score reflects your ability to handle credit well, based on how you’ve handled money before.
Therefore, having a good score can be beneficial – especially if you need funds at the last minute for something unforeseen and credit is an option that you’re exploring. Whatever type of loan or credit you take out, you’ll need to make sure you can cover and keep up with the repayments.
What causes a poor credit score?
The score may move up or down when you use credit. There are a lot of factors that can lead to a poor credit score, such as not paying off the balance on time, past financial issues, and having no or very little credit history.
A lot of issues come down to a lack of confidence. In fact, according to the Financial Capability Survey, 39% of adults (20.3 million) don’t feel confident managing their money. By having a better understanding of how to budget and how managing credit well can be helpful, it can boost confidence and reduce any mistakes being made.
How to improve your credit score
It is still possible to get credit if you have a bad credit score. In fact, if you’re accepted for a loan with a bad credit score, you can then improve your score as you stick to the repayment schedule. This can show that you can be good at managing credit and, by extension, your finances.
Meeting loan repayments is one way to build your score. Others include:
Check your credit report
Request your credit report for free from one of main credit referencing agencies. You can check the details that are on file for you and update anything from your address to incorrect credit application information.
Only borrow what you can afford to pay back
Check your finances as they are and ensure that you can afford to meet the repayments before you use any forms of credit.
Set up direct debits
Making regular payments to companies reflects well on your credit score. So, setting up a direct debit with your phone company, for example, can be hugely beneficial – plus it can help you manage your money better.
How does your credit score look?
