14 August 2023

As today is National Financial Awareness Day, we wanted to talk to you about all things finances such as financial education, the impact of your credit score and how your borrowing power can be affected. First let’s start with…

Financial Education

Learning the basics of how money works will help you with finances later in life, and it’s never too late to learn. There are many skills, principles, and concepts, including personal financial management, budgeting, investing, managing debt, and financial planning. By understanding these aspects, it can help you to avoid making poor financial decisions in the future.

The basics include how to create a budget, track spending, pay off debt and plan for retirement! This means you need to know how money works, such as setting financial goals and managing unexpected bills.

It was found that people with higher financial literacy are more likely to make ends meet, spend less of their income, create an emergency fund, and plan accordingly for the future. It is important to make informed decisions when it comes to money, as it will help to avoid unnecessary level of debt and having adequate funds available during your working life and for your retirement.

To get started:

• Look at different resources to learn more about financial education. There are loads of free resources to use online, such as the Money charity, Bank of England and Santander websites.

• Think about how you manage your money?

• Start investing!

• Do you have an emergency fund? Would you be able to deal with an unexpected bill or change in circumstances?

• If you have debts, are you managing them effectively?

• Create a budget – list income and expenses and record all savings.

These are just a few things to learn and think about when it comes to finances, as it will help you to stop making poor financial decisions.

Now let’s go on to…

Credit Score

Unfortunately, many young people aren’t sure what their credit score is or how it can affect them. Your credit score is a three-digit that lenders use to help them decide how much they’re willing to lend you, or if they’ll lend to you at all. When we talk about your interest rate what we mean is, if your score is higher, you can get a better interest rate. This means you pay less back, but if you have a lower score, your interest rate would be higher resulting in more being paid back over the lifespan of the loan.

Your score is determined on your payment history, how much you owe, length of credit history, type of credit and new credit applied for. 

Things to do that are good for your credit score:

• Only borrow what you can afford – meet the minimum repayment.

• Consider setting up direct debits – regular payments look good to lenders!

• Stay within credit limits and keep balances as low as you can.

• Keep, old, well-managed accounts – try not to change your credit accounts too much.

• Register to vote at current address.

• Check your credit report – regularly!

• Protect yourself and your credit score, by looking out for suspicious entries that could indicate fraud or identity theft.

If you have good credit this can put money back into your pocket, as having a high credit score lowers your cost to borrow.

When thinking about your credit score, you also have…

Borrowing Power

Which is another number and tells you how likely you are to be eligible for credit.

Things lenders look at when calculating your eligibility are:

• Income.

• Individual voluntary arrangements and country court judgements.

• Missed payments.

• Age of your accounts.

• Your employment details.

• Your current credit limits.

• If you’re registered to vote.

• Credit utilisation.

Here’s some things that you can do to improve your borrowing power:

• Satisfy any outstanding CCJs.

• Never miss repayments.

• Use less then 25% of your available credit limit.

• Get on the electoral register.

• Avoid opening 2 accounts in 6 months.

Think first before borrowing as taking out any credit can affect you later in life. For example, taking out car finance can affect your borrowing power for any type of loan including a mortgage. When thinking about borrowing, asses what it’s for and whether it will affect your financial goals in the future.


Written by: Amy Johnson

*Please note that the above information has been gathered through secondary research. The information provided is not based on our opinion. You should seek further guidance and information before making an informed decision.

Sources:
https://www.investopedia.com/guide-to-financial-literacy-4800530
https://themoneycharity.org.uk/
https://www.bankofengland.co.uk/education/education-resources/money-and-me
https://www.santander.co.uk/personal/support/customer-support/financial-education
https://www.finra.org/investors/personal-finance/how-your-credit-score-impacts-your-financial-future#:~:text=A%20credit%20score%20is%20usually,the%20time%20of%20your%20application
https://www.experian.co.uk/consumer/guides/what-affects-score.html
https://www.totallymoney.com/free-credit-report/borrowing-power-eligibility/#:~:text=Your%20financial%20behaviour%20affects%20your,can%20have%20a%20big%20impact.
https://www.oceanfinance.co.uk/loans/car-finance/how-does-car-finance-affect-a-mortgage/#:~:text=If%20you%27ve%20missed%20any,you%27re%20able%20to%20borrow.