The latest research into people’s knowledge on their credit scores have shown some worrying results, making it ever more pressing to promote education on such. One study found that just over half of all its participants could not correctly define what their credit score was, with only 38% of millennials in particular being able to correctly answer this question.
Other studies have also claimed that whilst over half of the UK does not understand what credit scores are, less than half are being active in trying to improve their score. The same research also found that it was less likely for those over 45 years old to understand the benefits that can come from a good credit. In addition to this, various different myths surrounding credit scores have been shown to genuinely have been believed; such as 27% of 25 to 44 year olds in the UK thinking that credit scores merge with a partner when married.
Other common myths that are adding to confusion within the general public on this topic include the notion that checking your score can damage it; there are two different types of credit searches, soft and hard, with checking your credit score being a soft search.
Checking your score will not damage your it in any way, however it is important to know that hard searches carried out by lenders in a typical application, do have the potential to damage your score. Another myth many believe is that there is only one credit score. Your score can vary dependent on what CRA (credit reference agency) is used, with different agencies such as Experian and Equifax having different criteria for working out someone’s score.
Although learning about your credit score can seem quite confusing, it can help significantly when applying for such essentials as loans, credit cards, phone contracts, and mortgages. Having a good understanding about your credit score can also help to determine the likelihood of getting accepted for various deals, which will in turn reduce the risk of people being rejected from applications.
Being rejected from applications can also make future attempts to get credit more difficult, leading people to apply for the riskier consumer finance loans that are renowned for contributing greatly to the UK’s debt problem such as payday loans.
The only options available to people with no credit are very limited. The most sensible option is finding a credit builder credit card which allows you to borrow a facility of £100 upwards and use it for every day purchases – with payments made at the end of the month. By making payments successfully on time, the information is reported back to credit reference agencies and your score improves. However, it can make your credit score bad if you miss repayments.
If you are looking for larger financial products, you can look at personal loans but again, having a good credit score is a vital requirement for approval. There are guarantor loan options available and rates are available for people who are tenants and living at home, although these can be as high as 59.9% compared to a standard rate of 49.9%, according to Guarantor Loan Comparison.