More than a third of credit card users don’t understand credit scores
Charlie Evans, Money Expert at Compare the Market, commented: “This research underscores the importance of financial awareness, particularly when it comes to credit scores and their impact on everyday financial decisions. Your credit rating is something that will be taken into account when you rent or buy a property, as well as if you take out a loan or credit card. It’s so important to shop around before taking out one of these products to help you understand your options and find a deal that suits you.
“There are a few tips you can take to help build and improve your credit score”:
Never exceed your credit limit and only borrow what you can afford to pay back.
Always make at least the minimum payment on time.
Keep your credit utilisation low which is the percentage of your credit limit you use.
Register to vote as you will then get on the electoral roll. Credit providers use information from the electoral roll to confirm your details are correct.
If you have a low credit score or have never had a credit card before, it is worth considering a credit builder card.”
New research reveals that only 17% of credit card users have a strong grasp of how credit scores are determined, while over a third (36%) admit to having limited or no understanding.
More than four in ten credit card users (46%) worry about maintaining a healthy credit score. However, the data reveals a significant gap in understanding how credit scores are determined across all age groups. Among younger adults, 21% of those aged 18-24 and 25-34 have no knowledge of the topic, similar to older groups, where 33% of those aged 45-54 and 46% of those aged 55 and older also lack understanding.
Nearly seven in ten of those with a credit card (68%) don’t realise that how long you’ve had your credit card will impact your credit score. If a borrower closes old accounts, it can reduce the average age of your credit history, which could negatively impact your credit score. Keeping old accounts open and in good standing shows lenders that you have a long history of managing credit responsibly.
The research also shows borrowers risk accidentally lowering their credit scores, as 58% are not aware using too much of their available credit could damage their scores. A low credit utilisation rate shows lenders that you’re only using a small amount of the credit that’s available to you and helps to prove you’re a reliable borrower. Concerningly, 34% are not aware that missing a repayment could damage their credit score. Late or missed payments can stay on your credit file for six years.
Perceptions of factors affecting credit scores vary widely by age. Only 29% of those aged 18-24 recognise that missing payments affect their credit score, compared with 60% of those aged 35-44 and 77% of those aged 55 or older.
Among those who do worry about maintaining a good credit score, the top concerns are:
Payment history and consistency (making on-time payments for loans, credit cards, and other debts) | 32% |
Total debt across other bank accounts and loans | 28% |
Making new credit inquiries | 23% |
Length of credit history (the age of your oldest account, newest account, and average age of all accounts) | 21% |
Credit scores are figures used by lenders to decide if a person is a high or low risk when it comes to borrowing. It could also give an idea of how likely that person is to be accepted for credit. Credit scores are based on each person’s credit report, which is a summary of how they have managed credit in the past.
A low credit score can make it difficult to get approved for loans, credit cards, or mortgages. Lenders may see you as a higher risk and charge you higher interest rates. This means you’ll end up paying more in interest over time.