Your credit score is basically a reflection of how well or poorly you manage credit. All legal money lenders and borrowing facilities use this to determine the risk they will be taking on you and this determines if you qualify for loans and credit or not.

Simply put it is your credit history. It is important to have a healthy credit as this improves your chances for higher credit limits, vehicle finances, mortgages and general loans, etc. However, just because you have a good credit score; frivolous borrowing is never encouraged as you can end up in a huge debt trap whereby too much of your disposable income goes towards payback commitments.

Besides paying back the principal amount, the interest is added and this can be pretty steep, which has a snowball effect! If you currently have high debt; avoid acquiring more to fund your lifestyle as this can spiral out of control.

By making repayments in time, contributing a little extra per month if possible and keeping combined debt as low as possible, you will ensure managing your borrowing habits in an acceptable fashion. This helps to increase your credit rating. Late payments and penalties, insufficient funds in your bank account that lead to debit orders that come back returned and unpaid, allowing others to borrow against your name and too much debt contributes to an adverse rating.

Some risks you should be mindful of is identity theft or inaccurately being handed over for debt collection as these could result in bad debts and judgements that restrict you from loans and even employment especially in the financial sector. To avoid this get into the habit of getting a regular credit score check.