It’s fair to say that most people are well aware of how strongly being in debt affects your overall financial situation. It not only directly affects your immediate spending ability but also has an impact your credit score. This can, in turn, affect your ability to get loans or borrow money and even make it difficult to maintain a low insurance payment rate.
When it comes to credit cards, the debt amount that you have accounts for about 30% of your overall credit score. This is obtained by finding your “credit utilisation ratio” – this is the ratio between the credit card balance and the credit limit. The greater your credit card balance is relative to credit limit, the larger the resulting impact on your credit score. In the worst case scenario, a “maxed-out” card balance (meaning that the credit limit has been reached) will have the greatest adverse affect on your credit rating.
Why Should You Improve Your Credit Score?
Credit scores take into account the proximity of your loan balance to the actual loan amount. Therefore paying off your loan balances quickly can improve your credit score. Here are some of the most critical ways in which a lower credit score can negatively impact your future finances.
- It can be quite difficult for you to get approved for loans in the future
- You can have serious trouble while you try to rent an apartment as landlords often perform a credit check prior to leasing out an apartment. If you have late payments, foreclosures, bankruptcies and delinquencies in your credit reports, your chances of getting an apartment get reduced significantly.
- Even if you get approved for a loan, you may have higher interest rates to pay and have more restrictive terms with new loans.
- With a poor credit score, you can have trouble getting security clearance or a job.
- You may need to pay higher insurance premiums with lower credit scores.
- It can be difficult to get a mobile phone contract
- Poor credit score can adversely impact your mental health and strain your personal relationships.
Paying Off Debts and Improving Credit Score
If you want to improve your credit score as quickly as possible, you should focus on paying off your debts as soon as possible. Make sure that you pay off your debts on time and attend to the accounts that are causing the most trouble first. You should also first pay off accounts with the lowest credit limits and tackle all high-interest debts first. Hopefully, this will ensure sure that your credit utilisation ratio is less than 30%.
Debt Help in Scotland
In case you are still looking for debt help in Scotland, you should get in touch with DFAD on DontFretAboutDebt.net, the leading debt management company in Scotland. The professionals at Don’tFretAboutDebt.net can help you to close all outstanding debts that you may have and also offer you counsel to improve your credit score within a short time.