How valuable are credit scores?

Today, credit is one of the most essential aspects of your financial power. With it you can get things you need now with a promise to pay for them at a later date. However, more and more people are becoming obsessed with their credit score. As the home of the most reliable independent financial advisers in Ayr, we want to take a close look at this. Below we will examine what your credit score is and how much value it actually offers.

What is it?

In the most basic sense, credit scores are a number that indicates a consumer’s creditworthiness. The idea is that the higher this is, the more reliable you are.

How is it calculated?

Every credit score, no matter the agency you use to get it, will use the same details to give you the final number. This includes important things like credit cards and loans you have had in the past as well as details like late payments. Overall, it looks at your financial history to determine how likely it is that you will be able to afford credit in the future.

The problem

That all probably sounds great right? But, what you need to keep in mind is that credit reference agencies all have a different scoring system. That means you will likely get a different number from each agency. It can cause a lot of confusion.

The bigger problem here is that the credit score the agency gives you doesn’t really mean much. If you apply for a loan or a mortgage from a bank, they will use their own system to determine your creditworthiness. So, is it even worth checking your credit score yourself regularly?

If you look at it in terms of who the credit score is actually benefiting, it is the agency and financial providers. In the past there was reluctance to let people view their credit scores. However, after deciding they had an obligation to do so, they decided to sell us the service and then use it as a way to sell different types of finance.

Some credit agencies are incredibly aggressive here. They may begin by offering a free service but quickly promote the idea that people need to check the credit score regularly. As a result they need to pay a monthly fee to subscribe. This conditions people to pay for the service and develop an unhealthy obsession with checking their score. At the end of the day though, it isn’t really that helpful.

Deciding for yourself

Realistically, we are all in a relatively good position to decide how creditworthy we are ourselves. You can check your monthly bank statements to see your income and outgoings. Nobody will know better than you whether you are a reckless spender or a good saver. You will also know yourself if you have had any issues in the past with credit card or loan repayments.

Plus, and most importantly, you can’t alter your credit file just by checking it frequently with an agency. So, really you are just wasting your time and money with these services.

It would be far better to take responsibility yourself for improving your financial power. What you need to do here is develop better habits, including ensuring you always make credit payments on time.

Talk to independent financial advisers in Ayr

If you are thinking about your credit health and big financial decisions like mortgages or investments, it would be far better to talk to an IFA. They will offer a service that can work for you. This could explore all of the various options and give you the support you need to make a decision.

Find It Near Me is the perfect place to find independent financial advisers in Ayr. Our service can match you with an expert that can work with you to offer a bespoke solution. Or, you can pick someone from our directory if you prefer.

You can also contact us if you need any assistance.