Why credit is important

Why is credit important to all of us?

Good Credit is part of your financial strength helping you get the things you want or need now, like a loan for a car or a credit card.  Improving your credit helps ensure you'll qualify for loans when you need them.

So, what is Credit?

It’s an obvious question, but there are many types of credit. The two most common types are instalment loans and revolving credit.

Instalment Loans are a fixed amount of money loaned to you to use for a specific purpose. These include personal loans such as guarantor loans from 1Plus1, car hire purchases and unsecured loans.

Revolving Credit is a line of credit you can keep using after paying it off. You can make purchases with it as long as the balance stays under the credit limit, which can change over time. Credit and store cards are the most common type of revolving credit

Not all cards are the same. When choosing the right one for you, explore all pros and cons. Interest rates can be high and there can be additional charges if you miss payments.

This interest rate is applied to your outstanding balance each month. Credit cards may have different interest rates for different things, like purchases or cash advances, so make sure you read the fine print.

Many credit cards charge fees, but they aren’t all the same. There may be fees for transactions, balance transfers, late payment, or even an annual fee. Take care, to fully understand the fees you are responsible for.

Cards have a credit limit which is the maximum balance you can have on your credit card. The provider determines this, based on your credit history and income. The credit reference agencies use your credit history to calculate your credit score. This is used by lenders to determine your credit worthiness. The three major  agencies are Equifax, TransUnion, and Experian.

Soft and hard searches

Every time a potential lender accesses your credit report and score, it's recorded on your report as a hard search. Too many of these may show potential lenders that you are trying to open more than one line of credit and may choose not to loan you money.

Soft searches occur when your credit report is reviewed when you're not looking to open new credit lines or just searching to see if you may be approved for a loan. Unlike hard searches, soft searches aren't considered by lenders when evaluating whether or not to loan you money.

Good credit is your strength

Credit ratings affect a lot of things such as:

• Determine whether a lender approves a new loan.
• Influence your interest rates and fees on the loan.
• Be reviewed by employers before they offer you a new job.
• Be used by landlords when deciding whether to rent to you.
• Be reviewed by insurance companies when you apply for many types of insurance, including car or household insurance.

Good Credit vs. Bad Credit

Good credit means you are making regular payments on time, on each of your accounts, until your balance is paid in full. Alternatively, bad credit means you have had a hard time holding up your end of the bargain; you may not have paid the full minimum payments or made payments on time, IVAs or even bankruptcy. The good news is that bad credit can always be improved. Practicing good credit habits can raise a low score, as well as help maintain a good score.

Negative information generally stays on your credit report for at least six years.  Bankruptcies for ten.

Super Credit Tips

• Always pay bills on time.
• Keep low balances on credit cards.
• Monitor your credit report to ensure there aren't any mistakes.
• Avoid too many credit enquiries in a short period.

Protect your finances! Keep financial records in order and always watch for fraud and scams.