Understanding How Credit Works

We’re here to make credit a lot less confusing… 

Let’s talk about how credit works! You may be wondering, ‘what is credit?’. Put simply, credit is the ability to buy things without using money you already have – it’s borrowing money that you will have to pay back. 

Credit lenders are companies who offer loans. Banks, supermarkets, Klarna and stores such as Very or Next all offer credit and various ways. Borrowing money in this way allows you to buy more expensive items such as a new washing machine or sofa when you don’t have the full purchase amount available to you.  

Credit allows you to pay money back over a certain period of time. Always read the small print to make sure you’re fully aware of how long it will take you to pay off credit in full.  

Credit & Credit Ratings 

Credit can also help to improve your credit rating because it shows potential lenders you are responsible and can pay back what you owe on time. Lenders know they can trust you if you have a good credit rating. Credit can also have a negative impact on your credit rating if you miss payments or are make late payments and this can affect your finances for years.  

Your credit rating is important. You’ll need to have a good credit rating to secure things like a mortgage, a car or a loan. If you’ve never had any credit, you won’t have a credit rating and lenders don’t like this. That’s why some people take out a 0% interest rate credit card and make sure to pay it on time every month to build up a healthy credit rating.  

5 Ways To Improve Your Credit Score:

  • Ensure you’re registered on the electoral roll (if you’re not, it’s much harder to build credit) 
  • Check for any mistakes on your file, such as address and personal details 
  • If you’re struggling with debt repayments, seek professional advice to take control of your finances 
  • Make an effort to pay all of your bills on time 
  • Ensure your bank accounts and data are secure to avoid fraudulent activity 

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