Why Improving Your Credit Score Could Help Your Holiday Plans
In fact, your credit score impacts pretty much every area of your financial life. Even when you are planning to go on holiday, your credit score could make all the difference. If you want to take out a small loan to fund your trip, or you want a credit card for making holiday purchases in a simple, safe way while you are abroad, your credit score will become a factor.
So if you’re thinking about holiday loans or credit cards as you plan your next holiday, it is worth being aware of the role your credit score might play. It is also worth knowing some simple tips for improving your credit score, and how that might help you.
Why does my credit score matter?
Whenever you apply for any kind of credit, whether it is a personal loan, a phone contract, a mortgage or a credit card, the lender will check your credit history. Each of us has a personal record, known as a credit report, which details our financial history - any previous borrowing we’ve done, how we’ve kept up with payments, whether we’ve ever failed to repay a debt in full, and so on.
Each time we apply to borrow money or get credit, it will impact our credit score. That impact will vary depending on the type of product we want. The purpose for which lenders look at our score always remains the same - the lender uses the score as a guide to tell them how reliable a customer we’re likely to be. The higher our credit score, the more confidence the lender will have in us. They will view your report in more detail if necessary to assess your previous account history, repayments etc.
Even if we’re applying for a little loan of just a few hundred pounds to cover holiday expenses, our credit score will influence the lender in deciding three things - whether to lend us the money at all, how much they’re prepared to lend us and what rate of interest they’ll charge.
As a rule of thumb, if you have a low credit score, you can usually expect banks and loan providers to offer you less and charge you higher interest, making your holiday loan more expensive. Why? Simply put, the lower your score, the higher the risk you appear to any lender assessing whether to fund your holiday or not.
How can I improve my credit score?
For that reason, if you are relying on holiday loans or credit cards, trying to improve your credit score can be a sensible step to reducing the cost of your holiday. There are 3 simple steps to start with:
- The golden rule of a good credit rating is to always pay your bills on time, as each missed payment, even if it’s only a matter of days, puts a dent in your score.
- Another one is to clear existing debts before applying for new loans, or getting into the habit of not maxing out your credit card each month. If you seem to rely heavily on credit, your score will be knocked down. In a roundabout way, if you borrow less and are less reliant on credit lenders can see this as a good thing.
- It’s also a good idea to have a look at your credit report for yourself, and see what banks and other lenders are basing their credit score judgement on. There might be activity on there that you don’t recognise, a possible sign of fraud. There might be simple mistakes on there that you can ask the credit reference agency (the company which puts together the report) to put right. You might also see evidence that a joint account you hold with another person is damaging your credit score because of their poor credit history.
You can go a step further and check out our article on the 12 ways to improve your credit score if you really feel like giving your report a detailed review.
Andrew joined Choose Wisely 5 years ago, originally working in a design capacity to make sure the website was simple to use. Most notably he worked with the Consumer Finance Association to design the comparison table of choice for High-Cost Short Term Finance products.