Looking into how people are using credit, what they know about and their feelings towards borrowing, the credit-building business Loqbox has published new findings from its report highlighting concerns about Brits’ understanding of the lending sector.
In its report, titled Borrowing money in the UK: What people get wrong and how to get it right, Loqbox reveals that despite the average credit score in the UK being 644 on the Equifax scale (a score considered to be ‘Fair’), a third of UK adults don’t understand basic borrowing terms.
Credit can be extremely helpful to make ends meet, but Loqbox has found that one in 10 Brits are invisible, and a further one in 10 are turning to buy now pay later (BNPL) to pay for essentials like food and fuel, showcasing the risks associated with it. When money is tight, people can feel pushed into a corner and turn to lending without always considering the repayment aspect of borrowing. According to Loqbox, confusing language, unclear terms and hidden fees in agreements can leave people unsure of what they’ve signed up to.
Sadly, for some of those excluded from mainstream credit, they’ve been left with no option but to go to high street loan sharks for the money they need and are at the whim of shockingly high interest rates and fees, with no legal protection.
Tom Eyre, co-founder and CEO of Loqbox, says: “How we view money, and what we know about how to borrow it, can literally alter the direction of our lives. When used responsibly, credit is an incredibly powerful tool that helps people reach important milestones, whether it’s renting somewhere new, buying your first home, that dream holiday, wedding or other momentous occasion. Credit can help achieve life’s special occasions. However, it’s so important that people have the facts and the tools to help them manage this credit responsibly.
Overview of the UK population’s appetite for credit
The report contains a survey, which was conducted in conjunction with polling firm Censuswide, exploring why people borrow on credit, how they access it, and their attitudes towards managing personal finances across the UK.
The Loqbox/Censuswide survey gathered 1,000 responses from across the UK, including Scotland, Wales and Northern Ireland, from young adults aged 18 to those 55 and over and across all income brackets – giving a comprehensive overview of the UK population’s appetite for credit, as well as their awareness, perceptions, decision-making, and understanding of borrowing.
Key findings
- Thirty-one per cent of people had borrowed money in the last year, with 49 per cent using credit cards, 35 per cent using personal loans, and 18 per cent using BNPL.
- Just one in four (25 per cent) said that they always think about whether they can keep up with repayments in the long term when borrowing money.
- Only 23 per cent say that they pay off existing debts before borrowing more.
- BNPL is most popular with people aged between 45-54, followed by those aged 18-24.
- Women were more likely to borrow on credit cards (54 per cent vs 50 per cent for men), and men were more likely to borrow on BNPL (19 per cent vs 16 per cent for women).
- Eleven per cent say they use BNPL to pay for essentials like food and fuel.
- Just 14 per cent always read the small print when they borrow money.
- Thirty-three per cent admit to not understanding key borrowing terms.
- The largest group borrowing less than £100 were in the North West, with Liverpool ranking as the location of the largest group of borrowers in this category.
Eyre added: “The key message shining through in the report is this: when borrowing money, by empowering yourself with the knowledge to make informed lending decisions, you can access better borrowing deals, save to meet your financial ambitions and build a richer life. By improving their knowledge of credit products, people can improve their financial wellbeing, and enjoy a happier, healthier relationship with money.”
Understanding lending
To help people in the UK better understand credit and the impact it can have on future finances, Loqbox also shares some top tips:
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Know what defines a low credit score: Every credit reference agency (CRA) has a different score scale, so take the time to learn the difference.
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2. Keep your balances low relative to your credit limits: Try to use less than 30 per cent of your available credit limit. It shows lenders that you’re not over-relying on credit and borrow responsibly.
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Always pay on time: Your payment history matters. Setting up reminders or direct debits can help you avoid missed payments.
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Use a mix of credit types that work for you: Managing different kinds of borrowing, like credit cards, loans or even your phone contract, can help to build your credit profile – but remember to not open too many lines of credit at once, as this can damage your credit score.
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Check your credit report regularly: This allows you to spot errors or inaccuracies that could be dragging down your score. Services like Credit Karma and annual free reports from the major credit bureaus can help you stay informed about your credit standing.
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Limit how often you apply for credit: Too many applications in a short period can harm your score and raise red flags to potential lenders.
Healthier financial habits
Loqbox has created several smart personal finance tools available under its membership. These empower people to build their credit histories, build healthy habits and access financial opportunities that may have previously been unavailable.
Loqbox has empowered more than one million people to take control of their money while they save and build their credit with the UK’s three main credit reference agencies: Equifax, Experian and TransUnion. Overall, 80 per cent of members felt better about their financial situation after using Loqbox, and almost nine in 10 members who track their credit score have seen improvements.
Whether they’re struggling to save, have poor credit histories, or just want to learn more about how the financial system works, Loqbox provides people with the knowledge, confidence, and tools to reach their financial goals and feel better about money.
