Debt Awareness Week: Supporting StepChange in Demystifying Credit Scores

Debt Awareness Week - Helping Customers with their credit score

Having greater financial confidence and an understanding of your credit score and history can inform the decisions you make and help improve your financial confidence and wellbeing. As a credit reference agency (CRA) we’re invested in helping consumers arrive at good outcomes and working with lenders and organisations to help make this happen.

This year, we’re supporting Leeds-based debt charity StepChange and their annual campaign, Debt Awareness Week 2024 to help open up the conversation around problem debt, and create visibility of the advice and solutions available to those who need help.

Debt Awareness Week is an annual event, and this year is themed around the ‘barriers to debt advice’. StepChange reports that half of their clients waited for over a year before seeking debt advice, and that 92% say they wish they had got help with their debt earlier. StepChange’s insight shows that there are a number of reasons why people delay getting help, but the impact this delay can have on finances and mental wellbeing can be devastating, and its essential people look to find support as early as possible.

One of the barriers cited by many people is a misconception that getting debt advice affects your credit score, or that it might limit their ability to access credit. Our role in helping individuals – from young adults onwards – to improve their financial confidence comes through providing accurate information on what a credit score is, how it works and what to do if you have any concerns.

Logo for StepChange, the Leeds-based debt charity.

What is a credit reference agency?

There are three main CRAs in the UK; TransUnion, Equifax, and Experian, and each collect and store information to produce credit reports.

These businesses collect and hold information about a person’s credit history. When you apply for a financial product such as loan or mortgage you may see in the T&Cs that the provider shares data with a CRA. Information is shared with CRAs from different sources such as:

• Finance companies like banks, building societies, and insurers.
• Other bodies like local authorities and courts.

What is a credit report?

If you are over 18 years old and have a bank account or taken out a loan, credit card or mobile phone contract, then you will probably have a credit report.

Credit reports are used by companies for many reasons such as responsible lending, anti-money laundering and fraud prevention.

Regularly checking your credit report and keeping an eye on your financial health helps drive some of the decisions you make when applying for financial products, encourages better spending habits and – super usefully - alerts you to any issues that may be affecting you such as identity theft.

If you bank online it’s likely your provider will already provide useful tools or services to help monitor your credit score within their app or banking platform. Alternatively, sign up for a credit report or as a simple starting point a free Statutory Report from TransUnion – both are quick and easy to do.

Our own research indicates that 80% of UK consumers agreed monitoring their credit report is important, and 55% monitor it at least quarterly. Nearly half (48%) of the people we surveyed starting monitoring in the last two years – so if you’ve not started monitoring your score now is a great time to do so. A study carried out by TransUnion for clients that used a mixture of consumer research and credit data, discovered that credit monitoring enabled consumers to make positive changes and more likely to see a score change over nine months compared to the UK credit active population, suggesting monitoring can positively influence decisions and financial confidence.

Consumers should look to get help when they are uncertain about their financial situation

How is your credit score calculated?

A credit score is created using a set of rules which take information from your credit report. It can help finance providers assess your creditworthiness when they’re reviewing an application for finance. It’s important to note there are different types of credit scores which can be created by the credit reference agency, lender or other organisations providing credit.

Your credit report and score are used to help credit providers determine how much credit they’re able to extend. This helps ensure finance providers don’t lend more than you can afford to pay back. It helps protect you whilst enabling access to finance. However, this is just one of the factors used by the lender. A high credit score doesn’t mean you’ll be eligible for any product you apply for. Similarly, a low score doesn’t mean you cannot obtain credit. There are different products and finance providers to suit different needs.

Listen to our podcast with Ellie Austin-Williams, founder of the This Girl Talks Money. Ellie wants to empower and help young people cultivate a positive money mindset.

Debunking myths around credit reports and scores

In the digital and social media age it’s easy to come across incorrect information about how credit reports and scores work. Here are five myths that are commonly misunderstood:

    1. There’s a credit blacklist. False, there’s no such thing. Credit reports are factual. Finance providers have their own policies when it comes to extending credit, and your credit information is just one factor when they make decisions.
    2. Credit reference agencies decide who gets credit. False, only the finance provider can decide which customers to offer credit to. Credit reference agencies just provide some of the information lenders use when making the decision, but each finance provider has their own individual lending policies.
    3. Being refused credit damages your credit score. False. A finance provider won’t tell credit reference agencies whether they’ve accepted or refused you credit. This doesn’t show on your credit report. However, you should avoid making multiple credit applications in a short period of time, as this can have an impact.
    4. Previous relationships always affect your credit score. False. Someone else’s credit history can only affect your credit applications if you previously made a financial connection by having a joint agreement. If you had a financial association with a former partner or spouse but no longer share any joint accounts or financial connections, you can formally disassociate yourself so their financial behaviour cannot impact yours.
    5. Checking your credit score multiple times will damage it. Not true. You can check your credit score as often as you like with no impact on your score. So, no excuses! Time to get familiar with your credit report.
    6. Getting debt advice will impact your credit score. False. This is one myth we need to bust in the context of Debt Awareness Week. if you are becoming more indebted or missing payments look to get help as early as possible.

              Understandably many people in financial difficulty worry about the impact debt will have on their wider finances. Hopefully these myth busters are reassuring and give you a better insight into how credit scores actually work.

              Additionally, getting debt advice involves no credit checks and has no impact on your credit score. And if you speak to a debt charity such as StepChange and they recommend a debt solution that could affect this, they will explain that clearly.

              Get to grips with your credit score or get expert debt advice

              If you’d like to get to grips with your credit score you can access our dedicated guide. If you are concerned about your financial situation get in touch with StepChange who may be able to help.

              If you’re a consumer with questions or issues related to your personal credit report, drivers history report, disputes, fraud, identity theft, credit report freeze or credit monitoring services, please visit our Customer Enquiries page for assistance.

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