Young borrowers risk damaging their credit rating
A study found gaps in the knowledge of young people about credit scores.
Compare the market found that while nearly nine in 10 (85%) of 16-24 year olds say they know what a credit score is and what it is for, half did not know that credit scores are used to verify credit card eligibility. .
A number similar to 45% were unaware that credit scoring is used to secure mortgages or personal loans, and more than half or 54% were unaware that missed loan or mortgage payments could have an impact on their credit rating.
The price comparison site’s study found that, unsurprisingly, younger people don’t know as much about credit scores as older groups. Of the general population, nearly a third don’t know that credit scores are used to verify credit card eligibility, and 29% don’t know they are used for mortgages or loans personal.
How to improve your credit score
Many of the young people interviewed by Compare the Market were unaware of the small steps they can take to improve their credit rating.
Almost three-quarters – 72 percent – did not know that voter registration can have a positive impact on your credit rating, while more than two-thirds or 68 percent did not know that the length of your credit history can also influence your score. The longer your credit rating, the higher it is usually due to a longer repayment history.
County court judgments (CCJs), individual voluntary agreements (IVAs) and bankruptcy – all of which remain on a credit report for six years – were also known to negatively impact only 43% of young people.
James Padmore, Money Manager at Compare the Market, said: “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. Certain actions can have a positive or negative impact on your credit score. Our research shows that while young adults believe they have good credit control, there is a significant knowledge gap. Unfortunately, having a low credit score early in life could affect your ability to get a mortgage or personal loan, for example.
“A few small changes can make all the difference in making sure you get accepted for credit later, such as registering for voters, not opening too many accounts at once, and keeping your credit card balances in check. 25% below limits.