The pandemic has done our finances a favor, according to new research.
The closure of shops, leisure venues and services meant we were limited to where we could spend our money, with many Britons saying they had spent less and reduced debt over the past two years.
And frugality – albeit enforced – has had an impact on our credit ratings, with the average UK rating rising, according to Experian.
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Although some families had reduced income, the increase in credit scores was helped by the so-called “mortgage holiday”, as well as the emergency payment freeze which allowed people to defer payments on credit cards and loans.
And many people have developed new financial behaviors during the pandemic, from spending less and saving more to reducing their debt, that have continued beyond the lockdown.
James Jones, head of consumer affairs at Experian, said: “It’s encouraging to see people’s credit scores improving on average.
“While many of us have managed to pay off existing credit using foreclosure-related savings, others have seen their income hit – but thankfully some have had their credit ratings protected by a payment freeze. “
The research also looked at the credit scores of people across the UK, with the City of London leading the way in creditworthiness and Hull having the lowest average score.
Unsurprisingly, those over 55 had the highest score, with those 21-25 having the lowest score.
But why is your credit score important and how should you check it?
Below, we’ve answered all the questions you need to know about your magic number and what it means to you.
What is a credit score?
Simply put, your credit score is a three-digit number that indicates how reliable you are at borrowing and repaying money.
The higher the number, the more likely you are to get the best deals when looking for a mortgage, loan or other credit.
Anything above 961 is considered excellent, and anything below 560 is very poor, according to Experian.
How is my score determined?
Your credit score is determined by your credit report, which is compiled by TransUnion, Equifax and Experian.
This report is a record of how you have managed your debts and bills in the past.
If you’ve never borrowed money before, it’s hard for lenders to assess the risk of lending to you, and your credit score will reflect that.
What’s in my credit report?
Your report will include all of your credit arrangements such as loans and credit cards, including those held jointly with other people, your credit repayment history, including missed payments within the past six years, and documents public records, such as county court judgments and the voters list.
Why is my credit rating important?
Your credit score can determine whether you are accepted for a loan or a credit card and impacts the type of deal you might be offered.
If you have bad credit, you may find that you are offered a higher interest rate or you may not be able to get credit at all.
It can also affect other types of credit agreements, such as mobile phone plans.
Where can I find out my credit rating?
The easiest way to find out is to use an online portal, such as Credit Monitor from Moneysupermarket or Credit Club from Moneysavingexpert.
Credit reference agencies, such as Equifax or Experian, are all required to provide a statutory credit report free of charge, although some of the other services such as credit score monitoring may incur charges.
How can I improve my credit rating?
First, it’s worth checking your credit report for any errors, which are often easy to fix.
Examples include duplicate or incorrect accounts, mistaken missed payments, or even a fraudulent loan taken out in your name.
You need to prove to lenders that you’re a reliable borrower, which means if you don’t have a credit card yet, it might be worth getting one – but pay it off every month.
Having no credit leads does not necessarily lead to a good credit score, as it can make it difficult for credit agencies to assess your credit.
Other steps you can take include avoiding spending up to credit card limits, making sure you make your repayments on time, and never withdrawing money from your credit card.
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