Only half of young adults recognised what could impact their credit score
People borrowing money can be left paying more than they need because of a basic error. According to Lloyds Bank, many people are missing basic knowledge on how to get the best interest rates – yet some simple changes can make a big difference on what you pay for everything from a car loan to a mortgage.
It has set out seven reasons you might be hit harder than you should – and one is as simple as being added to the electoral roll. According to a new survey, young people are “significantly” less confident, informed and aware of how credit actually works compared to older generations. This could lead to long-term financial issues as they don’t recognise the wide range of things that could be damaging their credit score.
The research found that despite using more credit products like Buy Now Pay Later schemes, barely half of 18 to 24-year-olds knew that missing a loan repayment or bill would damage their credit score, with only 46% understanding what a ‘minimum repayment’ is. Experts have warned this information gap could leave young adults “sleepwalking” into financial turmoil.
Additionally, some of the things that young people think would directly impact their credit score doesn’t have an effect at all. This included income, which 43% believed had an effect on their credit score.
A credit score is a vital piece of information that helps lenders see what type of borrower you will be. It is meant to show whether you can manage credit responsibly over time by analysing how you’ve handled credit and debts in the past according to Experian.
A lower score will likely mean lenders see you as more of a financial risk so you may face higher interest rates, restrictions like needing a guarantor or less options when trying to apply for credit. Higher scores tend to provide more options at lower costs.
In some cases, you may be able to improve your credit score simply by updating the details on your credit file. While others may need to change how they manage their money in order to increase their score, as noted by Citizens Advice.
According to Lloyds Bank, the main factors that affect credit scores are:
- Borrowing history
- Repayment history
- Joint accounts
- Your credit accounts and how you manage them
- Existing credit and balances
- Moving addresses
- Being on the electoral roll
Factors that won’t affect your credit score:
- Your income and savings
- Receiving benefits
- Living with other people but not having joint accounts
- Payment defaults and financial issues from more than six years ago
- Using a debit card
- Soft credit checks and quotes
Neil Kadagathur, Co-founder and CEO of Creditspring, the company behind the survey, said: “This research shows that many young adults are using credit before they fully understand the basics that keep them safe.
“That matters, because missing repayments, paying late, or misunderstanding the terms of a product can have lasting consequences. If people are engaging with credit earlier through products like Buy Now Pay Later, the information around it needs to be clearer, simpler and easier to act on.
“Credit can be a useful tool, but only if people understand the risks as well as the benefits. That is why lenders, regulators and policymakers all have a role to play in making sure young people get the right information at the right time.”
