In my younger more primitive years I used to think of credit reporting as nothing more than a way of consumerising a business function. Credit reports, or scores as they’re now known to the public, are used by creditors as a way of making decisions about your creditworthiness, but it is of little practical use outside high street banks and car dealerships. More widespread knowledge of prudent credit usage is a more suited antidote to better credit over a colourful barometer shipped straight from a bankers’ desk. Duping consumers into being overly cautious in a market they don’t truly understand is surely a futile endeavour.
But since the rise of companies such ClearScore most credit reporting has turned into a free mechanism, with Experian scrapping their heavy monthly bills to accommodate a new emerging market in which they commercialise the model by pairing people to lenders. Along with giving you a score they also impart more advice on how to improve your chances of getting a good mortgage or loan and clearly demonstrate the sort of rates you’re eligible for now should you have the need to borrow.
All very helpful stuff, but according to a new study by online lender MYJAR more than four in ten Brits have never tried to find out their credit score, and it’s been longer than a year since checking for nearly 20 per cent. That’s despite one in five saying that their poor credit score has seen them denied much-needed cash loans, and one in 20 have had their applications for a mortgage rejected – and even been denied a mobile phone contract, due to their poor credit history.
MYJAR’s spokesperson said: “Many people may not think they need to worry about their credit score, until suddenly a situation arises where they need to borrow money.
“It’s really valuable to know and understand your credit score, because if you’re able to improve it, it can offer peace of mind knowing you have that safety net there if you need it. You can easily request a copy of your credit score online.”
More than half of the country doesn’t know exactly how much they owe on credit cards and loans, although estimates suggest that, on average, each Brit has £1,780 worth of credit card debt. Not including mortgages, they also owe over £1,600 in loans, plus a further £311 on store cards and to overdrafts.
Many Brits are also unaware of ways that their credit score could be improved, with over half not knowing that joining the electoral register can help. And over four in 10 aren’t aware that paying pre-existing loans back on time can boost your credit score. Just one in 10 respondents have updated their creditors with their new address after moving home, and fewer than one in five have paid off their full credit card balance each month.
A tenth of unfortunate respondents have been turned down for a loan in the past, and the same amount have had no luck applying for a credit card. Four in 10 believe their credit score was the culprit for their financial difficulties, and 15 per cent put it down to having one or more CCJs against them. And a surprising one in 20 believed it was because they had been a victim of identity theft, with the criminal leaving black marks all over their records.
MYJAR’s spokesperson added: “We think that financial education has let down previous generations and resulted in a lot of people who don’t understand basic money management or any idea of how many financial products work.
“Misuse of credit facilities and a disregard for your credit score has resulted in a lot of people with unnecessary debt. That’s why we think it’s imperative to be a responsible lender, and to educate our customers through our money management and saving tips blog posts at MYJAR.com.
“We urge people to take credit extremely seriously, and that no one should take on debt without proper consideration. We encourage our customers to educate themselves on things like their credit score and to save their money so that they can take steps to improve their future financial circumstances.”
FIVE TIPS FOR IMPROVING YOUR CREDIT SCORE
Join the electoral register
If you have a credit card, pay it off in full every month
Don’t make use of all of your available credit facilities, as it indicates financial difficulty
Don’t make a lot of credit applications in a short amount of time
Having the same bank account for a while is a good indicator for your credit score