Do You Know These 25 Surprising Facts About Credit?
Want to be the life of the party? Well, these facts probably won’t help you. But if you want to learn more about credit and understand how broad its impact on your financial health can be, then you are indeed in the right place.
Your credit score can be the deciding factor in whether you are approved for a credit card, loan, or mortgage, how long it takes you to pay off interest, or if you’re approved for a mobile contract. Ultimately, we can’t understate just how important credit is. By learning about credit, you’ll be empowered to take action, build your score, and protect your financial health.
So, without further ado, let’s dive right into these facts, rapid-fire style!
1. Checking your credit score is free
You can access your credit score without incurring any charges by taking advantage of the option for soft credit checks available through credit reference agencies like Experian. This lets you track your credit score and watch for improvements without paying any fees.
2. There isn’t a credit score you start with
You aren’t automatically assigned a certain credit score at birth, or when you turn 17, for example. Rather, your credit score develops over time as you begin using credit accounts, making payments, and building a credit history. The first credit score you have is the one that reflects your credit behaviours after you've started using credit products.
3. Closing a credit card can hurt your credit
While closing a credit card once you no longer use seems like a sensible thing to do, it can actually negatively impact your credit score. Closing your old cards reduces your total available credit, which can raise your credit utilisation ratio. And while you might not use the card any more, it still plays a role in your payment history. Closing the account means you’ll lose that ability.
4. You have multiple credit scores
Each credit reference agency uses its own scoring model to assess your creditworthiness. As a result, you'll likely have different credit scores from different agencies. Although these scores generally reflect similar trends in your credit history, they may not match exactly due to variations in the algorithms used.
5. Your age doesn’t impact your credit score
Unlike factors such as payment history and credit utilisation, your age itself doesn't directly influence your credit score. That said, younger individuals might have lower scores due to shorter credit histories.
6. Your income doesn’t impact your credit score
While your income is an essential aspect of your overall financial well-being, it doesn't play a role in determining your credit score. Your credit score primarily reflects how you manage credit obligations, such as loans and credit cards. It’s completely possible for someone to have a high income, yet struggle to manage their debt, leading to a lower credit score. Alternatively, someone with a lower income who is more credit-savvy could have a higher credit score.
7. Missing a single payment can hurt your credit score
Your payment history is the most important factor influencing your credit score. Because lenders view missed payments as a sign of potential risk, even a single missed payment can have a substantial negative impact on your score. Therefore, it’s absolutely critical that you diligently monitor your upcoming payments to ensure that nothing slips past you.
8. Your credit score and credit report are different
Your credit score and credit report are distinct components that provide different types of information to lenders. Your credit score is a number representing your creditworthiness, while your credit report is a comprehensive record of your credit accounts, payment history, inquiries, and negative marks like bankruptcies. In short, your credit score is like a snapshot, and your credit report is a detailed narrative.
9. Bankruptcy, defaults, and CCJs can affect you for up to seven years
Negative events like bankruptcy, defaults, and County Court Judgments (CCJs) can leave lasting marks on your credit report, which in turn affects your credit score. These negative marks can remain on your report for up to seven years, impacting your creditworthiness during that time.
Fortunately, their influence will gradually diminish if newer, positive information in your credit history demonstrates that you have changed your financial habits.
10. A bad credit score can cost you, and a good one can save you
Your credit score has a significant impact on your financial life. With a poor credit score, you're more likely to receive less favourable interest rates and terms on credit cards, loans and other financial products.
On the other hand, a strong credit score can give you access to lower interest rates, higher credit limits, and more attractive loan terms. Over time, the savings gained from having a good credit score can add up substantially.
11. A quarter of Brits are Manchester City fans
Just kidding—only checking to see if you’re still paying attention. However, what is true of a quarter of Brits is that they own 3-4 credit cards.
Having multiple credit cards usually helps your credit score, as responsibly managing multiple credit accounts can demonstrate your ability to handle credit wisely. The exact number of credit cards you should have depends on your habits and goals. While 3-4 credit cards is common in the UK, you may find that having fewer cards aligns better with your financial goals.
12. Using your entire credit limit isn’t good for your credit
Maxing out your credit cards can indicate that you’re dependent on credit to get by, ultimately harming your credit score. Additionally, your credit utilisation ratio is an important factor in your credit score calculation. Using too much of your available credit can indicate higher risk to lenders, potentially resulting in a lower credit score.
To help your credit out, try to use less than 25% of your available credit.
13. Employers can check your credit—with your permission
Some employers may request access to your credit report as part of their hiring process, but they require your consent to do so. They often use this information to assess your financial responsibility and trustworthiness. Keep in mind that you have the right to decline these requests without facing negative consequences in the hiring process.
14. Your bank account balance doesn’t impact your credit score
Regardless of whether you have a large balance or smaller balance, your bank accounts have a negligible impact on your credit score. The main way your bank accounts can impact your credit score is through your overdraft usage. If you use your overdraft too frequently or struggle to pay it off quickly, it can indicate that you’re reliant on credit.
15. You can get a loan with excellent or poor credit
While your credit score plays a crucial role in the loan decision process, lenders also consider factors like your income, employment history, and debt-to-income ratio. Having an excellent credit score typically qualifies you for better terms, but having a lower score won’t necessarily bar you from getting a loan altogether.
16. Credit scores and reference agencies vary by country
Different countries have their own credit scoring models and credit reference agencies. For example, in the United States, FICO scores are widely used, whereas in the Netherlands, factors like income and employment status are emphasised.
If you’re new to the UK, it’s important to understand what factors are influential in building your credit score.
17. Around 5 million Brits lack a credit score
According to Experian, about 5 million Brits have no credit score or credit report, or are otherwise ‘credit invisible.’ If you have a poor credit score, you might think yourself envious of these individuals, but being credit invisible poses serious challenges. Those who are ‘credit invisible’ often struggle to qualify for credit cards or even be approved for renting a place to live.
18. Regularly checking your credit report can identify errors
Over half of Brits have never checked their credit score. Doing so is a wise habit to get into, as regular monitoring helps you identify any errors, inaccuracies, or fraudulent activities that may be impacting your credit score.
This can prevent long-term damage to your credit profile and save you money by addressing problems promptly.
19. Buy now, pay later can affect your credit score
Although buy now, pay later services might not currently impact credit scores, some services are starting to report usage to credit reference agencies.
Plus, missed payments on services like Klarna can eventually be turned over to debt collection agencies, which will significantly harm your credit score. If you must, use these services responsibly and sparingly to avoid negative consequences, or even just an overly-complicated monthly budget.
20. Registering with the electoral roll can help your credit score
Getting on the electoral roll is a great first step for building credit. It serves as a form of identity verification and confirms where you live. Lenders like to see this, as it reduces their risk when extending credit to you.
21. Paying off a loan can temporarily hurt your credit score
While paying off a loan is generally a positive financial step, it can lead to a temporary drop in your credit score. This is because paying off a loan affects your credit mix and can alter your credit utilisation ratio.
Rest assured this effect is short-lived, and the long-term benefits of having a paid-off loan vastly outweigh any temporary score reduction.
22. Student loans don’t impact your credit score
Student loans are unique in that they don't affect your credit score. Repayments are deducted from your income just like taxes. Maintenance loans provided by the government also don't directly influence your credit score.
23. Increasing your credit limit can boost your score
When you're granted a credit limit increase, but you don’t increase your spending habits, your credit utilisation ratio decreases. This can positively impact your credit score, as lenders generally see a lower utilisation ratio as a sign of responsible credit use.
24. Credit agencies don’t decide loans
While credit reference agencies play a crucial role in assessing your creditworthiness through scores and reports, they don't make final lending decisions. Banks and credit card companies evaluate your credit information, income, and other factors to determine whether to approve your loan or credit application.
25. Hundreds of thousands have improved their credit with the Pave app
Building your credit score can be hard. We get that. That’s why we made the Pave app. With Pave, you can monitor your upcoming payments, actively build your score through payment reporting, and get personalised insights for improving your credit.
With Credit, the More You Know, The More You Can Grow
Credit is a topic that’s not always easy to understand. There are a multitude of factors that influence your score, and seemingly-small details can have a significant impact on your credit score. If you’re getting started building your credit, it’s easy to be discouraged by the complexity of credit. However, the more you know about building credit, the better-equipped you are to improve and maintain yours.
The Pave app’s learning resources and personalised credit fixes can not only help improve your score, but enable you to keep building your score in the future. Want to see Pave in action? Download the app today from Google Play or the App Store!