If you are applying for a mortgage, payday loan, store card or other financial product, your credit score will be looked at to determine how safe you are as an individual in terms of being able to make repayments on time and clear the debt. For many people, especially if they need fast assistance in the form of a payday loan, having no credit at all can actually be worse than having bad credit as there is no credit history for a company to fall back on to see if you are worth the risk.
Since the financial crash in 2007 there has been a change in the attitude of young people, with around two-thirds of 18-31 year olds (Millennials) staying away from credit entirely. It is completely understandable why this might have been a natural human reaction to a farcical, and World Wide, economic crisis that was years in the making. The effects of the economic crash are still being felt ten years on from the beginning of the first event, but it is important to understand why having credit is still important.
Reasons You Need a Credit Score
There are a wide number of items, services and goods that are linked to your credit history. Here are just a few of them that you will need a credit score to be able to confirm:
Mortgage Application – When you are applying for a mortgage for your dream home it is important for the lender to be able to see your credit history. Without this they will be unable to ascertain how safe a bet you are in terms of being able to make repayments over, what will be, a long period of time.
Car Insurance Deals – Your credit score might be as important as whether you have a clean driving record or not when it comes time to apply for car insurance deals. Car insurance companies will investigate whether you are a risk, and there is a link between poor credit and insurance claims made.
Renting a Property – Landlords will always look at your credit score to determine whether you are likely to be a good and regular payer. If you have a poor credit history it might be a sign that you won’t look after the property.
Looking for a New Job – Not in all cases, but sometimes a potential employer will review your credit history as part of their background check on you during the hiring process. This is to ensure you are an honest individual, and that there won’t be any debt collection agencies disrupting work time.
For all of these things, and others that we haven’t discussed, having no credit history means that the companies you are looking to enter into a contract with have no way of evaluating you, giving them doubt as to whether to enter into a long-term agreement at all.
Looking after your credit score is a long-term process, and one that can have a hugely positive impact on your ability to apply for larger loans and mortgages in the future. Always take care with your credit history, as although it is better to have bad credit than no credit, you don’t want to have bad credit either. It can be difficult to climb away from a bad credit score to a positive one, but not impossible if you work hard and slowly at a few key steps.