Credit overconfidence costing consumers
Research from ClearScore reveals that one third of people overestimate their financial position and risk getting trapped in a downward spiral of credit rejection
Press Release: 28/11/15
A third of people vastly overestimate their credit score and risk finding themselves in a downward spiral of credit rejection, according to new data released today by ClearScore.com.
The UK national average credit score is 380 out of 700, but when ClearScore asked 4,000 consumers to estimate theirs, the average response was far higher at 442.
With their permission, ClearScore then cross-referenced a sample of respondents’ estimates with their real score. This revealed that a third of people overestimated their score, on average by more than 200 points.
Your credit score is one of the most important numbers you have. A poor score can affect your ability to access the best financial products, whether you can buy or rent a property, get a mobile phone contract or even a job. For example, the difference between a ‘low’ and ‘excellent’ score could mean £19,000 in extra interest repayments across a lifetime – the equivalent of a year’s annual take-home salary.
Justin Basini, founder and CEO, ClearScore, said, “People have a natural tendency to inflate their creditworthiness, but the data suggest that around a third of people make wildly inaccurate overestimates. This false confidence matters – blindly applying for credit can make you even more unlikely to be accepted in future because failed applications can damage your credit rating. This leaves people vulnerable to becoming trapped in a spiral of debt.”
ClearScore is on a mission to help every single person in the UK to become better money managers by giving them 100% free access to credit scores and reports so they can regularly monitor and improve their financial situation.
For most people, it’s relatively easy to improve your score, often by making simple changes to your registered address or removing inaccurate credit records. But to do that you first need to know what your score is.
Michelle Highman, CEO, The Money Charity, comments, “If you want to get on top of your money and get the most out of your finances, understanding your credit score can really help. Although they may seem mysterious, once you engage with them, credit ratings and reports are not hard to understand. It is important not to bury your head in the sand or base financial decisions on incorrect information. So make sure you are armed with the full facts – ClearScore’s five tips are a great place to start.”
Basini concludes, “The fact is that around 32 million UK adults have never checked their credit report and remain in the dark about their financial position. This is a clear case of where ignorance definitely does not mean bliss.”
Justin Basini’s top five tips to improve your credit score
1. Access your score regularly and correct any errors on your credit report.
2. As soon as you get a new credit card, always set up a minimum payment monthly direct debit to avoid ever missing a payment.
3. Make sure you are registered on the electoral roll.
4. Consider applying for a credit card if you don’t have much credit history – borrow small amounts and pay off the balance each month.
5. Update registered addresses with your bank.
1 ClearScore commissioned Censuswide to poll a nationally representative sample of 4,000 UK adults between 30th October 2015 – 4th November 2015. The national average Equifax credit score is 380 (based on an average of 10 million Equifax scores).
2 A sub-sample of 366 consumers who had given their permission for their actual Equifax credit score to be compared to the estimate they had given. 116 people had overestimated their score, on average by 201.24 points.
3 ClearScore compared the difference in credit card interest paid by someone with a lower credit score with that of someone with a higher credit score and found that this was more than £19,000 across a lifetime – more than the average annual UK take-home salary. A typical credit card APR rate offered to someone with a low credit score is 36.5% compared to 20% for someone with an excellent score (based on DeFaqto data). The average UK household credit card balance is £2,325 (The Money Charity, July 2015). The lifetime cost assumes paying the minimum repayment per month and adults using a credit card for fifty years. The median UK take-home salary is £18,077 (ONS, 2014).
4 Research was conducted by Censuswide, who carried out an online poll of 2,353 UK residents aged 16-55+ between 21.07.15 and 27.07.15. Of those, 62.1% said they never check their credit score or know what one is According to the ONS, there are 52,443,290 16+ people in the UK.
ClearScore (www.clearscore.com) is a new service which allows consumers to access their credit report and scores for free as often as they need or want. ClearScore was co-founded by CEO Justin Basini and investors Brightbridge, Blenheim Chalcot and QED Investors. www.clearscore.com