HALF of 16-24 people don’t know that a missed payment can hurt their credit rating
Young borrowers are unknowingly putting their financial futures at risk, and many are unaware of the damaging consequences of not paying back a loan or credit card.
More than half (54%) of 16-24 year olds were unaware that a missed credit payment can impact their score and negatively impact their chances of getting credit in the future, according to one study by Compare The Market.
Almost half were unaware that their credit score would be checked when applying for a credit card, and 45 percent were unaware that their credit history was also checked when obtaining mortgages or personal loans .
According to Compare The Market, 54% of 16-24 year olds are unaware that defaulting on a loan or mortgage can impact their credit rating.
In the general population, more than two-thirds of people knew that credit scores were used to verify credit card eligibility, and only 71% knew they were used for mortgages or personal loans.
Research described a lack of awareness among many young people about specific actions impacting credit scores, and found that many did not know how to improve their credit score.
“Credit scores are used by lenders to understand whether a borrower can afford a product and assess their ability to pay it back on time,” said James Padmore, money manager at Compare The Market.
“Certain actions can have a positive or negative impact on your credit score and our research shows that while young adults think they have good credit control, there is a significant knowledge gap.
“Having a low credit score early in life could unfortunately affect your ability to get a mortgage or personal loan, for example. “
More than half of young people did not realize that a bad credit score could prevent them from being eligible for the most competitive offers, whether it is a mortgage, a personal loan or a personal loan. ‘a credit card.
Almost three-quarters were unaware that voter registration could impact their credit score, while more than two-thirds were unaware that the length of their credit history could influence their score.
County court judgments, individual voluntary agreements and bankruptcy, all of which remain on a credit report for six years, were only known to have a negative impact by only 43 percent of young people.
Beware of Buy Now Pay Later programs
Buy Now Pay Later programs such as Klarna have become a popular form of credit, with five million people using these products during the pandemic, according to the FCA.
These programs allow buyers to delay or spread the cost of a purchase over a period of time rather than paying the full cost in one lump sum payment at the time of purchase.
More than half of Buy Now Pay Later users aged 16 to 24 missed at least one payment on these types of purchases in the past year.
Although most programs perform a flexible credit search when a customer makes a payment – which will not appear on an individual’s credit report – some products require a strict credit search.
This means that if buyers miss a payment or don’t pay off their debts on time, it could be marked on their credit report and impact their ability to apply for credit in the future.
How can people check their score?
A credit report not only details an overall credit score, but also lists a person’s credit accounts, such as bank accounts, credit cards, utilities, and mortgages.
It will also display their refund history including late or missing payments.
Young people will need to see their report first before they can better understand where they can improve.
There are several ways to view your rating and history for free.
Experian and Equifax offer free 30-day trials of their service online, but you’ll need to remember to cancel before the promotion ends to avoid subscription fees.
Ten tips to boost your score
1) Register on the list of electors at your current address
2) Use a credit card responsibly and always try to keep a good amount of credit available
3) Check your credit report regularly and ask for errors to be corrected
4) never withdraw money from your credit card
5) Limit new credit requests
6) if you have bad credit, stop asking for more credit
7) If you don’t have a credit card, get one – just make sure you pay it off every month
8) don’t miss refunds
9) let your credit history mature
10) don’t keep unused cards
Alternatively, you are entitled to a free copy of your credit report every 12 months from each of the three major credit reporting agencies.
Why is it important to improve your score?
Your credit score reflects the reliability of your credit and affects your ability to borrow money.
Having a good credit rating will improve your chances of getting a mortgage, credit card, or loan in the future and will give you access to better deals.
“I would always recommend that you keep an eye on your credit score, especially if you are considering taking out a mortgage,” said Andrew Montlake, Managing Director of Coreco Mortgage Brokers.
“Lenders have more difficult credit scoring systems to adopt if you only have a 5 percent or 10 percent deposit, for example.
“It is important to make sure there are no mistakes on your report and to take action to improve your score as much as possible before you come to apply for a mortgage.”
How can you improve your score?
There are plenty of ways to improve your score, including registering to vote at your current address, using a credit card responsibly, and making sure you don’t miss any refunds.
“A few small changes can make all the difference in making sure you get accepted for credit later, like getting on the voters list, not opening too many accounts at once, and keeping your credit card balance at. 25% below limits, ”Padmore says.
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