For most people in their twenties and thirties, their credit score is just this number that is somewhere “out there” in the financial world. It isn’t something that has a meaningful impact on their quality of life. But as you start to make bigger and bigger financial decisions, you soon find that is increasingly important. 

But, what is a credit score?

At root, a credit score is just a number that a credit rating agency gives you based on your financial history. It is an indication of your creditworthiness. The higher the score, the more likely you are to pay creditors back for the money that you borrow. Thus, they become more willing to lend to you at favourable interest rates.

As you can see, your credit score matters. Here’s why. 

It Allows You To Take Out A Bigger Mortgage

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At some point in your life, the time is going to come when you will want to take out a mortgage. Ideally, you want to be able to purchase the property with the best combination of bedrooms, local amenities, schools and location. Unfortunately, if you have a low credit score, there will be a cap on the amount of money you can take out. Thus, you can find yourself in a situation where you can quite easily afford the monthly mortgage payments, but the bank still won’t lend. It can be infuriating. 

To give you an example, there is a big difference between the amount you can borrow with a credit score of 600 compared to, say, 760. If you have a credit score of 600, banks might lend you £50,000 for a mortgage. If, however, it is over 760, they will hand over up to £200,000 – that’s a massive difference. 

Taking out payday loans, car loans and paying off your credit cards on time can all help boost your credit score. 

It Allows You To Get Cheaper Car Loans

Even though car loans are a form of secured debt, the interest rates that you pay can vary tremendously, depending on your credit score. Again, the figures are strikingly different.

Let’s say that you take out £20,000 to buy a new car. If you have a credit score of over 800, you’ll pay around £2,000 in interest over five years. If your score is 630 – the lowest most lenders will go – you’ll wind up paying £5,000 more. 

It Could Affect Your Job

Credit rating agencies don’t just share your information with creditors – they can also pass it onto your prospective employer with your permission. Many companies want to see your financial history to get more of a sense of the type of person that you are. Thus, they will often ask you to hand over this information as part of their background research. If you pay your debts on time, it is a sign to them that you’re conscientious and willing to work hard. If you’ve been declared bankrupt multiple times, that could count against you.