The Importance of Credit Scores for Personal Finance

In an age where offers of credit seem to be everywhere, and the financial impact of the Covid-19 pandemic is increasing the reliance on credit cards and overdrafts for many people, it might come as a surprise that around half of the adults in the UK have never checked their credit score.

It may be because they are not planning on applying for a mortgage, getting a credit card or purchasing anything on finance, any time soon. Or it may be because they do not know how, or why, it is important to keep track of their credit score.

At Better with Money we care passionately about helping reduce financial confusion and misery amongst employees by bringing money matters to life in an interesting and accessible way. We believe everyone should learn how to regularly check their credit score, know how their credit score is calculated, understand what can impact and improve it, and what they can do if something on their credit file is missing or wrong.

But let us take a step back. Why is your employee’s credit score so important? Well it doesn’t just determine if they can get credit today, it also influences how much credit will cost them. If their credit score is poor, it may prevent them from renting a property and it can even mean they end up paying more for insurance. If you also consider that credit reference agencies analyse financial information going back six years, you can see that financial choices and decisions your employees make today could still be effecting their finances in six years’ time, when Christmas 2026 is just around the corner!

Of course, many people, especially younger people, may not think they need to check their credit score because they have never had a credit card, bank loan or bought anything on finance. They may assume that, when they need to apply for a mortgage, loan, or their first mobile phone contract, their “clean sheet” will mean that lenders will see them as a safe bet. Unfortunately, it’s unlikely to be the case. Research in 2018 found that up to 5.8 million people in the UK had little or no credit history and, as a result, they found it harder and more expensive to get credit.

The idea that a credit reference agency can hold information which could impact someone’s financial future, might seem unfair to many people. However, by equipping employees with the knowledge and ability to check, improve and protect their credit scores, they will hopefully be able to avoid any nasty surprises when they need credit, and also be well on their way to building a better financial future.

If you would like to find out more about Better with Money’s high quality, fun and interesting financial education services for employees, please do get in touch.