More than half of people across the UK are planning to be more careful with their money in 2022, according to new research by Experian.
In a survey conducted by Opinium of 2,001 UK adults at the end of November, some 50 per cent of respondents are planning to be more careful with their cash this year, stating that the pandemic has made them re-evaluate their finances with a further 23 per cent expressing concerns about their financial future.
However, one of the biggest barriers to improving our finances is actually understanding how credit works or how to go about improving their financial standing.
John Webb, Experian’s Credit Expert, explains: “Many people aren’t clear about the best way to stay on top of their finances in the coming months.
“For example, 54 per cent of people believe or don’t know that interest on credit becomes payable immediately after purchasing an item. This isn’t true and is one of the myths we want to help bust as people look to organise their money.”
Truth about seven credit myths revealed
The number of credit cards you own affects your credit score - False
Experian’s research discovered that almost everyone surveyed (85%) said they thought this was fact, or weren’t sure if it were true.
It’s not the number of credit cards you have that affects your credit score, but how you use them.
You can reduce your credit score by nearing your limit. You can improve this by keeping your balance around 30 per cent or less of your credit limit.
If you have multiple credit cards you haven’t used in a long period of time, then consider whether you really need this. Just remember though, having a card with a high credit limit is a plus for credit scores.
Making a large purchase on your credit card affects your credit score - False
Over two thirds of those surveyed (69%) thought this was fact, or weren’t sure if a large purchase on their credit card would affect their score.
“We don’t record your credit card transactions on your credit report, so this doesn’t directly impact your score, it’s how much of your credit card limit you use (known as your credit utilisation) that does,” Experian said.
it continued: “We generally suggest sticking to about 30 per cent or less usage of your credit limit. This means if you have a credit card with a £1000 limit, try to stay below £300. You might go above this sometimes, especially when a large purchase (over £100) has section 75 protection. But the most important thing is making sure you can meet the monthly payments and have a plan to repay in future.”
There are no real benefits to a balance transfer card - False
Over half (54%) of people surveyed didn’t know there were any benefits of a balance transfer card, or were unsure what they were.
Experience explains: “By moving your existing card debt to a balance transfer card, you could reduce the amount of interest you pay - usually for a small fee.
“These cards typically offer a zero per cent or low interest rate for a set period. This means your monthly repayment is usually lower, and you have the opportunity to overpay, using the saving.”
You should always owe money on your credit card to improve your credit score - False
Some 54 per cent of people in the survey thought this was true, or were unsure if they should always owe money on their credit card in order to build their credit score.
Experian said: “Lenders like to see ‘active’ credit cards that demonstrate consistent monthly repayments, however, you could use a credit card for minimal [planned] monthly spending, and repay it in full each month. This way you’ll avoid paying interest.”
Interest on credit becomes payable immediately after purchasing an item - False
Over half (54%) were unsure, or believed this to be true.
Experian explained: “Interest is only added after a new statement date and when a balance has not been paid off in full.
“So, if you make a purchase, receive a statement and then pay off the balance in full by the due date, you will not be charged any interest.”
However, it warns: “If you make a payment, receive a statement with that item but do not pay off the balance in full, interest will be charged on the outstanding balance from your last statement up to the date of your current statement.
“Remember, interest for credit cards vary so it’s worthwhile checking your rate.”
Switching credit cards affects your credit score - Partly true and false
Over three quarters (76%) of people surveyed believe that switching credit card providers could affect their credit score or were unsure if it would.
Experian clarifies: “Whenever you apply for credit, your score might dip slightly in the short-term. We recommend being careful and only applying for two or three accounts every few months.
“It’s important to use comparison sites so you can check what you’re more likely to be accepted for first, without impacting your score - yYou could even be pre-approved.
“If you do get a new credit card, your score may dip slightly for six to 12 months. This is until lenders can see you’ve consistently made your monthly payments on time. If you do this, you could see your score improve in the long-run.”
Buying a holiday on a credit card gives you extra protection under the Consumer Credit Act - True
Nearly a third (32%) were unsure if this was true and believed it to be false.
Experian said: “Most purchases made on a credit card are protected by the Consumer Credit Act (section 75), if they’re over £100.
“Buying a holiday on a credit card will, in most circumstances, give you protection. It allows you to make a claim against your credit card company to get your money back if a retailer or trader lets you down and refuses to honour the contract properly - including if it goes bust.”
Find out more details about Consumer Credit Act protection on the Experian website here.
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