Borrowers use lockdown as opportunity to strengthen their credit report

One in three used savings from lockdown to pay down their debt. Average credit balance fell by £1,934 between March and June

UK, 12 August 2020: One in three (31%) used the enforced lockdown to pay down their debt, according to new analysis from Experian.

The proportion of Experian CreditExpert customers that had high balances1 across their credit accounts stood at 12.6% around the start of lockdown (23rd March). This dropped to 8.6% at the beginning of June, just before measures to contain the outbreak began to ease.

Alongside this, average credit balances dropped by 17% during the UK COVID-19 lockdown. Experian customers had an average credit balance across all credit accounts (excluding mortgages) of £9,681 in June compared to £11,615 in March2.

Credit utilisation (percentage of available credit a person is using) is one of the biggest factors on a person’s credit score. High credit utilisation can suggest a high credit risk and can therefore have a negative impact on your score. However, reducing balances across your credit accounts is a positive score factor that can strengthen your report.  

Experian’s findings suggest some savvy UK borrowers took the opportunity to use savings made by reduced spending to get their finances in order, and subsequently improve their credit score.

James Jones, Head of Consumer Affairs at Experian, said:

“The COVID-19 pandemic has changed the way we go about our everyday life and in some cases our financial outlook and priorities. For some people, a reduction in spending has enabled the repayment of existing borrowing and a knock-on improvement in credit scores.

 “As the UK slowly begins to return to some sort of normality, people should continue to practise the good financial habits they have adopted during the lockdown, especially when it can have positive impacts on your credit report and score. A healthy credit score can help secure low rates on future borrowing, so can pay handsome dividends.”

The average length of time people hold a credit account was another common positive score factor influencing scores in June. Two in five (41%) CreditExpert customers have mature credit accounts that have been held on average for 34 months or more, demonstrating a proven credit history to lenders. Therefore, they will have seen this score factor boosting their credit score.

Score factors look at a variety of characteristics on your credit report and are the building blocks of a person’s credit score.

Lenders use credit scores, as well as other sources of information, to review an individual’s financial behaviour, to help them to assess people’s creditworthiness when applying for new credit.

Jones continued: “The COVID-19 outbreak has impacted consumers’ finances in different ways. While some people have been able to use the lockdown period to pay down debt, we know others have struggled, especially where incomes have been hit. We encourage anyone worried about making payments towards credit and other commitments to seek help as the sooner the situation is tackled, the sooner you’ll be back on top of your finances and improving your credit rating.

“People who take the time to review their financial circumstances and understand their credit score are likely to find their score is in the best possible shape for when they next apply for credit.”

Tips:

Here are 5 tips from Experian on how to improve your Experian Credit Score

  1. Register on the electoral roll at your current address. As well as helping confirm your name and address, this contributes up to 50 points to your Experian Credit Score because it’s seen as a sign of stability and reliability.
  2. Check your credit report regularly and ask for any errors to be corrected. A single late payment can wipe 130 points of your Experian Credit Score. Make sure your report reflects the facts.
  3. Keep credit card balances as low as possible. How much of your credit card limits you regularly use can have a big impact on scores as it shows how reliant you are on credit. For example, keeping card balances below 30% of the limit can gain 90 points.
  4. Limit applications for new credit. Space out any credit applications you make and shop around using eligibility-checking services. That way, you’ll only apply for deals you’re likely to get and avoid collecting multiple ‘hard’ search footprints. Not applying for any new credit for six months can boost your Experian score by 50 points.
  5. Let your credit history mature. While it’s sensible to shop around from time to time to make sure you’re getting the best deals, it will help your credit score if you let some of your credit accounts mature. For example, holding the same credit card for five years can add 20 points to your Experian Credit Score.

ENDS

Notes to editors:

Insights based on Experian’s CreditExpert (subscription) customers’ score factor data between 23rd March 2020 – 8th June 2020 unless stated otherwise.

1Total balance across all credit accounts, excluding mortgages, is more than £30k and/or Total balance on revolving credit, such as credit cards, is more than £15k

2Based on average balance across all active credit accounts excluding mortgages for Experian’s CreditExpert base on 23rd March 2020 and 8th June 2020

Media contact:

Priya Sahib, Consumer PR Manager, Experian UK&I

Tel: 07816 491152 / Email: Priya.Sahib@Experian.com

Brands2Life for Experian

Tel: 0207 592 1200 / Email: experian@brands2life.com

About Experian

Experian is the world’s leading global information services company. During life’s big moments – from buying a home or a car, to sending a child to college, to growing a business by connecting with new customers – we empower consumers and our clients to manage their data with confidence. We help individuals to take financial control and access financial services, businesses to make smarter decisions and thrive, lenders to lend more responsibly, and organisations to prevent identity fraud and crime.

We have 17,800 people operating across 45 countries and every day we’re investing in new technologies, talented people and innovation to help all our clients maximise every opportunity. We are listed on the London Stock Exchange (EXPN) and are a constituent of the FTSE 100 Index.

Learn more at www.experianplc.com or visit our global content hub at our global news blog for the latest news and insights from the Group.