We all know we have a credit score – it looms in the back of our minds and finances like an unwanted spider web, something we avoid looking at until we really have to. Credit scores look to the untrained eye as if they are very complicated, but in actual fact they are perfectly simple numbers which measure our reliability in repaying debts and represent our financial stability.

It’s important to understand your credit score and how it works because once you understand it – like many things – you will find yourself in control of it. And once you can control it, you can make it work in your favour – which, in the long term, will lead to a higher approval rating for loans and credit cards as well as smoother, more confident interactions with landlords and mortgage brokers.

But let’s not run before we can walk. If you’re here, you’re right at the start of your learning about this important financial topic, so let’s dive right into this Credit Score Guide For Beginners.

What is a credit score?

Your credit score tells a lender how reliable you are with repayments. Having a high credit score shows that you are reliable and pay your debts on time. A low credit score tells them that you have a history of late or incomplete debt payments, making it less likely that you’ll be approved for a loan or credit card with good interest rates (or at all). The bottom line is that your credit score describes how big a risk you are to potential lenders.

What affects my credit score?

Your credit score is affected by late or irregular payments on any debts, overdrafts, consistently reaching your credit limit, and other signifiers of poor money management skills or financial hardship – red flags to lenders looking for assurance that they will be repaid.

Credit scores are also negatively impacted by frequently opening new bank accounts and repeatedly applying for credit, as rejections reflect poorly on your financial situation.

Improving your credit

Having a good credit score allows you to be approved for loans – including mortgages and business loans. You will also be able to access the best credit cards and interest rates if you have a good credit score. Neobanks like Zolve can offer solutions like credit cards for students with no credit history.

If you have a bad credit score, luckily there are simple ways to improve it. They aren’t all quick fixes and it may take time to reap the rewards, but there’s no time like the present to start.