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We all know how important it is to be on top of your game when it comes to credit savviness. It's the only way to make credit work, as being irresponsible with your borrowing can lead to financial disaster. This is why it's so concerning that so few people know their credit score – and some don't even know how much they're borrowing.
Research from MyCreditMonitor has found that 60% of consumers have no idea what their credit score is, despite the fact that 42.5% expect their score to have an impact on their financial decisions in the coming year. It seems that despite many realising how important it is, few actually have a handle on their own creditworthiness, an assumption backed up by the finding that 40% wouldn't check their score before applying for a loan or credit card.
This could be a big mistake. Without having a grasp on your own score, you run the risk of being rejected for credit – everyone from mortgage companies to mobile phone providers will decide how trustworthy you are (and how likely it is that you'll pay back the money you owe) based on this three-digit number, and if it isn't high enough, you won't be accepted.
If you're rejected, it'll bring your score down even further, starting a vicious cycle that could make it even harder to secure credit in the future. And to think this could have all been avoided if you'd checked your score to begin with – if you knew that it wasn't up to scratch, you could have worked on improving it before applying for credit, giving you a better shot at acceptance and avoiding the downward spiral.
But what if you're already trapped in a cycle of debt and can't see a way out of it? This could be made worse if you don't actually know how much you owe, which according to figures from VoucherCodes.co.uk, is becoming an increasingly common problem.
The figures show that 37% of respondents admit to being in debt, but that doesn't mean they know how far in the red they actually are. Indeed, 28% of adults with a credit card have no idea how much debt they have on it, and a further 28% don't know what they owe in bank or payday loans.
Borrowing levels don't seem to be slowing down, either, with 33% of respondents having borrowed money this year, and 11% of those opting for a credit card. To date, those who have borrowed in 2016 have taken out an average of £446 in new debt, despite the fact that 38% of those already in debt admit to being concerned about the amount they owe.
This is just the average, too, with some forms of borrowing racking up an even greater level of debt. For example, those who borrowed from a bank this year have taken out an average of £8,094 in personal loans, while £1,485 has been put on a credit card, highlighting how quickly debt can accumulate.
Many respondents also lack awareness when it comes to their day-to-day finances, with 28% of those with a current account unaware of how much they actually had in it. A further 27% who owe money on their household bills couldn't specify how much they owed, and 47% weren't clear what they owe on their mortgage – and a troubling 32% were even unconcerned that they lacked such financial knowledge.
Ignorance really does seem to be bliss for many, yet it certainly doesn't bode well for the state of the nation's finances. "Having an awareness of the money you have at your disposal, as well as your monthly outgoings, is key to managing your finances and preventing yourself getting in unnecessary debt," said Claire Davenport of VoucherCodes.co.uk. "[Unfortunately,] it still seems that a large proportion of Brits are turning to borrowing in order to manage their finances."
This issue could be compounded by the lack of credit score knowledge, and taken together turn into a recipe for debt disaster. This is despite the fact that many people realise how important their credit score is and the impact it can have on their financial decisions – after all, as Jenny Walker of MyCreditMonitor points out, "credit scores are nothing new and we all have one, [yet] the majority of people don't actually know what their credit score is.
"Worse still, it seems many of us are still applying for credit without even checking our credit score to find out what chance we have of being accepted, or if we're in a position to get a better deal than the one we were applying for. As well as there being a lack of awareness on the actual value of their credit scores, people might not realise that there are a number of things they can do to improve their scores. Checking your credit score is simple and straightforward – there's really no reason not to."
Checking your score – and working to improve it if needs be – can help you achieve better credit deals and could lead to significant savings in terms of the interest rate you pay, so it makes sense to get in control. It could help you manage your debt far more effectively, perhaps by allowing you to take advantage of balance transfer credit cards. By spending some time to take stock of your finances and figuring out what you need to do to escape debt, you'll be well on your way to better borrowing.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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