Younger borrowers unaware of potential damage to credit score, study finds

Almost half (49%) of people between the ages of 16 and 24 are unaware that credit scores are used to check credit card eligibility, according to a new study.

Findings from comparethemarket.com revealed that 85% of of 16 to 24 year-olds do know what a credit score is and what it is sued for, but that 45% are also unaware that credit scoring is used to secure mortgages or personal loans.

comparethemarket.com suggested that its study highlights “a gaping knowledge gap” about credit among young people, which is significantly greater than other age groups.

The study, based on 2,013 UK consumers and carried out in April, also showed that 31% of the wider population also don’t know that credit scores are used to check eligibility for credit cards, while 29% are unaware they are used for mortgages or personal loans.

comaprethemarket.com also stated there is a general misconception among young people in terms of specific actions that can impact credit scores, as well as the steps they can take to improve their credit rating. While 87% claimed they are aware of what can affect it,
72% of respondents did not realise that registering on the electoral roll can have an impact, while 68% were unaware the length of a credit history can also can influence a 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,” commented comparethemarket.com head of money, James Padmore.

“Certain actions can impact your credit score, either positively or negatively. Our research shows that while young adults believe they have a handle on credit, there is a significant knowledge gap. Having a low credit score early on in life could unfortunately affect your ability to get a mortgage or a personal loan, for instance.

“Just a few small changes can make all the difference to ensure you’re accepted for credit later on, such as registering on the electoral roll, not opening too many accounts at once and keeping your credit card balances 25% under the limits.”

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