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Financial Literacy: School Curriculum Changes on the Horizon in the UK

by Madaline Dunn

The UK’s financial literacy rate ranks among the lowest when compared to similar economies, with some research finding that 73% of the country falls below the financial literacy benchmark. 

This has very real implications for day-to-day life, with poor money literacy leaving people “worse off” financially.

Money habits form as early as 7, meaning schools can play a big role in equipping young people with the financial skills they need to navigate life. But research indicates schools aren’t yet meeting the mark.

In November, the government announced plans to target this education gap as part of its broader curriculum changes.

This week at The Salary Calculator, we’ll explore what those changes mean, what’s ahead, and avenues for continued financial education.

Low financial literacy rates

In 2024, abrdn’s Savings Ladder Index found that the UK’s financial literacy was “concerningly low.” 

The global investment company asked people the “big three” questions on interest, inflation and diversification, and found that 44% (23.3 million UK adults) were classified as having poor financial literacy.

According to the firm, this lack of financial literacy has broader implications for people, including being significantly less likely to have savings and a “pension penalty” of £10,000. 

Following the findings, the investment company, along with MyBnk (now Money Ready) and the Just Finance Foundation, penned an open letter to the government, highlighting the role of financial education in driving social mobility.

“Too many people still leave school unprepared”

Financial education was introduced into the curriculum back in September 2014 as part of Citizenship Education for those aged 11 to 15, but implementation has been patchy.

“Despite financial education being on the secondary curriculum for over a decade, too many people still leave school unprepared,” said Leon Ward, CEO, Money Ready.

Research suggests that just two in five young adults are financially literate, while more than half (61%) do not remember receiving financial education at school.

A recent report from the All-Party Parliamentary Group (APPG) on Financial Education for Young People shared further insight into these findings. In particular, the APPG report found a disparity in financial education both across and within UK nations, a lack of support for post-16 education, and a digital financial literacy curricula lag.

Curriculum changes 

The government’s Curriculum and Assessment Review was launched in 2024 to assess the education landscape — the first time the curriculum had been reviewed since the early 2010s. 

The report, published just before Christmas, underlined that children’s money habits begin early and go on to shape their financial capabilities later on in life, while also spotlighting that children are increasingly making digital financial transactions themselves. 

However, the report shared that, in practice, the financial education content already in the national curriculum is not always taught, and almost half of parents believe that too little time is spent on financial management skills.

The report recommended that, going forward, students should first be introduced to mathematical concepts (such as percentages) in Maths before learning about their practical applications (like compound interest and loans) in Citizenship.

It was also recommended that Citizenship, and its financial education elements, be introduced as part of the national curriculum at Key Stages 1 and 2 — one of the government’s key reforms. 

The final revised national curriculum is set to be published by Spring 2027.

Money Ready’s Ward called the review’s recommendations on financial education a “great step forward,” but said that now the focus must be on “making practical money lessons a reality,” adding that schools need support to embed impactful money lessons, with topics including “budgeting, earning, credit and saving.”

Indeed, a 2024 report from the Social Market Foundation found that 54% of primary and 75% of secondary teachers said that they do not have enough time on their timetable to give their students a “strong foundation” in financial literacy. 

“The earlier children begin to understand money, the better equipped they will be”

Meanwhile, 36% of primary teachers said they would feel either ‘not very confident’ or ‘not at all confident’ in teaching financial education if it were to become part of the school curriculum, underscoring the importance of teacher training, development and guidance in this area. 

Abby Birch, a financial wellbeing and money expert, said the planned curriculum changes are “welcome” after many years of campaigning to make financial literacy compulsory in schools.

“These are fundamental life skills, and the earlier children begin to understand money, the better equipped they will be to make informed and confident financial decisions,” noted Birch.

For Birch, in terms of priorities, the focus should be on personal budgeting and day-to-day money management, alongside building financial resilience, including the role of emergency funds.

“As pupils progress, it is important they learn how debt works, and gain a basic understanding of mortgages and home buying, which are major financial decisions many adults feel unprepared for,” she added. 

Indeed, 2025 research from mortgage broker Boon Brokers found that 58% of young adults aged 18–24 surveyed said their school did not provide facilities to learn about mortgages.

Continued financial education

But, with the new curriculum not due to be implemented until 2028, it will be some time before students see the benefits of these financial education changes. 

“These changes will take time to embed and will not impact today’s workforce,” explained Birch, adding: “In the meantime, it remains vital that employers continue to support financial wellbeing in the workplace, so people can build confidence and capability with money now.” 

Research shows that employees would welcome this kind of support, too, with a Pluxee study of HR professionals finding that 68% reported a rise in requests for financial education or support initiatives in 2024.

“Financial education equips people of all ages to flourish”

Outside the workforce, Ward noted that, in addition to providing financial education in primary and secondary schools, Money Ready helps people manage their money at “key transition stages,” from entering higher education and beginning work to starting a family and buying a home.

Sites like MoneySavingExpert also provide personal finance help for both children and adults, offering a free personal finance course, MSE’s Academy of Money, available through the Open University. The course covers a wide range of topics, from budgeting effectively and income tax to borrowing money responsibly, savings, and pensions.

Of course, our own Salary Calculator helps show the effect that income tax, NI, student loan and other deductions can have on your take-home pay.

Organisations like Citizens Advice, Money Helper, StepChange and Turn2us can also provide guidance and support across a variety of personal finance areas, including debt, budgeting and money management.

“Financial education equips people of all ages to flourish, because the language of money is one we all deserve to understand,” said Ward.

 

Tags: Financial education, Personal finance

Student Fees, Finance, and Funding: What You Need to Know 

by Madaline Dunn

With the new school year commencing, millions of students across the country will be mulling their university choices — and how they’ll fund their education.

But while record numbers are being accepted into universities and colleges this year, research shows that students are concerned about costs.

At the same time, recent data from the Higher Education Policy Institute (HEPI) shows that misconceptions about student loans abound.

To clear up the confusion, this week at The Salary Calculator, we’ll answer:

• How have loans, fees and thresholds changed?
• How much can students borrow?
• Is student finance enough to cover costs?
• How can students financially prepare for university?

How have loans, fees, and thresholds changed?

Over the last two decades, a lot has changed across student fees, finance, and funding. With tuition fees hitting £9,535 this year, the days of the £1,000-a-year courses seem but a distant memory.

Meanwhile, maintenance grants, which previously offered students up to £3,387 a year, were scrapped back in 2017 and replaced with maintenance loans for living costs.

And interest rates? That depends on your plan. Currently, it’s:

• 3.2% if you’re on Plan 1 (you started your course before 1 September 2012)
• 3.2% to 6.2% based on annual income if you’re on Plan 2 (you started your course between 1 September 2012 and 31 July 2023)
• 3.2% if you’re on Plan 5 (you started your course after 1 August 2023)
• 6.2% if you’re on a Postgraduate Loan plan

That said, you’re charged interest from the day your first payment is made, regardless of your plan.

Your plan will also determine the salary threshold at which you’ll start repaying your loan.

For Plan 1, you’ll start paying back your loan at £26,065. With Plan 2, this is £28,470, and for Plan 5 it’s £25,000.

For Plans 1, 2 and 5, you’ll pay 9% of your income.

For postgraduate loans, the threshold is £21,000, at which point you pay 6% of your income over the threshold.

If you would like to see how much this will take off your pay each month, use The Salary Calculator‘s Student Loan options to get an illustration.

For those commencing university in 2025, loans will be wiped after 40 years — up from 30. However, many students will never pay back their loans in full. For full-time undergraduates starting their courses in 2024/25, government forecasts are that this figure stands at just 56%.

How much can a student borrow?

While tuition loans cover your course fees and are paid directly to your university, maintenance loans are means-tested. When you apply, your household income and where you live and study will be factored into how much you’ll receive.

For those from households with an income of £25,000 or below and living at home, you’ll be entitled to £8,877. This rises to £10,544 if you live away from home outside London.

Earlier this year, figures from the Student Loans Company (SLC), the organisation which administers loans and grants to students in colleges and universities, revealed that in 2024-25 the amount of debt students graduated with was up nearly 10% from the year prior, reaching an average of £53,000.

Indeed, this echoes numbers obtained by the BBC last year, which found that 1.8 million people owe at least £50,000 in student loans, and an additional 61,000 have “balances of above £100,000.”

Despite this data, a recent report from King’s College London found that people “underestimate” the true level of debt students take on by £10,000, with average student debt exceeding the US by “nearly £6,000 more than the equivalent figure in the US.”

Is student finance enough to cover costs?

But while student debt is increasing, research suggests that students are still struggling. According to the Centre for Research in Social Policy (CRSP) at Loughborough University, the maximum maintenance loan covers “only half of what is needed for a minimum socially acceptable standard of living.”

“The financial landscape facing current students is among the trickiest ever”

Findings from the study, conducted with HEPI and TechnologyOne, revealed that for a three-year course, students would need £61,000, increasing to around £77,000 in London.

“The financial landscape facing current students is among the trickiest ever. Our long-running Student Money Survey has routinely found that Maintenance Loans are not enough to live on, but in recent years, the situation has become significantly worse,” said Tom Allingham, student finance expert at the money website Save the Student.

Allingham shared that Save the Student’s latest survey found that funding now falls short of living costs by an average of £504/month. This, he said, is over double the shortfall the organisation discovered in 2020 (£223).

“As a result, students are having to cut spending on even the most basic of necessities, with 9% telling us they’d used a food bank in the past year, and 67% saying they skip meals at least some of the time,” added Allingham.

Leacsaidh Macdonald-Marlow, student voice assistant at Student Minds, echoed this, noting that the current financial landscape, in particular the cost of living crisis, is putting “immense pressure on students.”

“A majority of students now do part-time or full-time work alongside their studies in order to afford necessities like rent, and this affects overall student wellbeing, time management, energy, and subsequently academic stress and performance,” noted Macdonald-Marlow, who said that maintenance loans fail to provide students with “any real sense of financial security,” across almost all socioeconomic backgrounds.

“Students also have a lot of worries surrounding debt”

Indeed, earlier this year, a survey published by Advance HE and the Higher Education Policy Institute (HEPI) found that over the last few years, there’s been, what they called a “dramatic rise” in the number of full-time students working during term time. In 2025, the figure sits at just under 70%, up from 56% the year before and 42% in 2020.

“Students also have a lot of worries surrounding debt, and often feel ashamed or unable to talk to anyone about these anxieties, which only compounds financial stress and a desire to work even longer hours during term-time,” commented Macdonald-Marlow.

Allingham says that a lack of funding underpins this financial struggle. He explained that, in recent years, funding has fallen “drastically short” of inflation, amounting to “huge real-terms cuts” of up to £1,906 in 2024/25, according to the Russell Group.

“We’re urging the government to increase Maintenance Loans above and beyond the rate of inflation, to restore funding to previous levels and prevent students from being condemned to a never-ending cost-of-living crisis,” said Allingham.

Meanwhile, Macdonald-Marlow noted that, as outlined in its Student Mental Health Manifesto, Student Minds recommends the reintroduction of maintenance grants, increased maintenance loans and a fairer repayment scheme.

How can students prepare financially for university?

But, with no current plans to increase the maintenance loan, or indeed reintroduce maintenance grants, how can students best financially prepare for university next year?

“The first thing any student should do to get their finances in order is open the right student bank account,” said Allingham, who explained that instead of being swayed by sign-up freebies, students should prioritise those accounts with interest-free overdrafts instead.

“This is probably the safest and most easily-accessible form of emergency cash at uni, and will be far more useful than any freebie a bank can offer,” added Allingham.

Meanwhile, Leon Ward, CEO of financial education charity Money Ready, recommended that students create a clear picture of their finances. “Work out what you need to spend money on (rent and food, for instance) vs what you’d like to spend money on (such as new trainers) and check that against the money you have coming in.”

Once students understand their financial situation, Ward suggests looking at ways to fill any gaps. “If you need to spend less, check out special student discounts on sites like Student Beans, UniDays or NUS Extra, and get savvy with meal-planning to avoid food waste. By budgeting like this, you’ll enjoy your uni experience without getting into too much debt.”

The money charity provides guidance on this via the hashtag #GetUniReady on its socials and website.

Alongside bank accounts and budgeting tips, Allingham advises that prospective students should also look into bursaries, scholarships and grants to see if they’re eligible for any free cash.

“Despite what many people think, this money isn’t just reserved for those with the highest grades, from the lowest-income backgrounds or who excel in a particular subject,” he explained, adding that there are funds for all kinds of “unusual reasons,” including being a vegetarian or having the surname ‘Graham.’

The Student Minds website similarly offers advice on how students can access additional financial support, such as bursaries or hardship funds.

And, for those already eyeing part-time job opportunities, Macdonald-Marlow recommended looking within your university or Students’ Union, noting that jobs are often advertised via the SU website and/or Unitemps.

“These employment opportunities are built for students, offering hours that fit around your university work, and paying fair wages,” she added.

Tags: student finance, student loans, tuition fees

Buy Now, Pay Later: How Does it Work and What’s Changing?

by Madaline Dunn

Buy Now, Pay Later (BNPL) use has surged in recent years. From fridges and fashion to air fryers and furniture, more and more people are choosing BNPL payment plans to foot the bill — including for their summer holidays, according to information and insights company TransUnion.

A recent Loqbox report shared similar findings: among parents, BNPL use for summer travel now sits at 8.4%. This reflects a shift from 2024, it said, when such products were used as “back-up options.”

But consumers aren’t just using BNPL for big-ticket items. Research from the credit-building business revealed that, in the UK, one in 10 are now using BNPL to cover basics like food and fuel. 

And BNPL is not without risk. Unlike other types of credit, BNPL has remained unregulated, with debt charities and consumer experts alike sounding the alarm.

However, regulation to tame this “wild west” is on the horizon. Amidst these upcoming changes, this week at The Salary Calculator, we’ll walk you through: 

• What is Buy Now, Pay Later
• What’s driving BNPL use?
• What risks are associated with BNPL 
• What regulatory changes are incoming? 
• How can consumers protect themselves against unmanageable debt? 

What is Buy Now, Pay Later?

The BNPL market has quadrupled in size since 2020, and in the year to 2024, nearly 11 million people used these kinds of products, up from 8.8 million in 2022.

While BNPL has seen a recent growth in popularity, this kind of short-term financing — which enables shoppers to spread the cost of a purchase across a few weeks or months — has been around for over a decade.

And although BNPL is typically an interest-free form of credit, it’s still a loan.

When consumers use products from companies like Klarna or Clearpay, they’re agreeing to pay back the full cost and any late charges for missed payments. 

What’s Driving BNPL Use? 

For consumers, BNPL products can appear more accessible and convenient than traditional forms of credit. 

Indeed, BNPL offers are increasingly advertised at checkout. There are now over 20,000 merchants offering BNPL — both online and in-person — and that number is only growing. 

Likewise, some of these financial loans only require a soft credit check that’s not visible to other credit providers, which can make BNPL an appealing option for those without a strong credit history. 

And with the cost of living remaining high, the perceived affordability of this kind of credit among consumers is also a key driver in its growth, research shows.

“There is a crossover between BNPL use and people struggling with their finances”

Beyond this, some research has suggested that BNPL’s success is rooted in its “effective” use of artificial intelligence (AI) and algorithms.

So, who’s using these products the most? 

Research from Finder showed that BNPL is now most popular among Millennials, with 60% using such products “at some point,” followed by Gen Z (56%).

A number of factors underpin this trend, from a wariness of traditional credit and credit card approval challenges to a dissatisfaction with traditional banking services.

BNPL use is also high among those living in the most deprived areas of the UK and those with low financial resilience, according to the Financial Conduct Authority’s (FCA) recent Financial Lives report.

“Our research has suggested there is a crossover between BNPL use and people struggling with their finances,” said Simon Trevethick, head of communications at StepChange Debt Charity, adding, “Previous polling found that those who use BNPL are twice as likely as the general population to need to use credit to cover essential bills.”

This is corroborated by findings from the Money and Pensions Service, which revealed that 38% of BNPL users need “full debt advice,” and 35% are “at risk of needing debt advice.”

What risks are associated with BNPL?

While BNPL can appear an attractive option, it’s not “free credit” and carries with it potential risks.

Despite this, research points to a lack of consumer awareness regarding the costs of BNPL.

 “It’s a form of credit—and should be treated with the same caution”

In a study conducted for the Lending Standards Board (LSB) by RFI Global, only 52% of BNPL users reported being aware of late payment fees, while 50% were unaware of potential fees before incurring them.

Similarly, research from the Behavioural Insights Team (BTI) found that, of those surveyed, four in ten were unaware that they could be approved for BNPL “even if they could not afford it.”

“Consumers often fall into the trap of treating BNPL like an extension of their disposable income,” said Matt Dronfield, the managing director of Debt Free Advice. “In reality, it’s a form of credit—and should be treated with the same caution.”

Debt Free Advice added that BNPL can make things “seem affordable when they’re not,” encouraging impulse buying and overspending.

Indeed, one piece of research found that BNPL users spend 6.42% more than those who do not. Meanwhile, data from the BIT showed that 38% of those surveyed had “spent more than they planned because BNPL was available.”

Debt Free Advice also noted that because BNPL companies all work differently, it’s easy to lose track of what is owed, and consumers can end up borrowing more than they can afford.

In 2024, Finder’s survey found that in the last 12 months, 53% of those who had used BNPL had been charged late fees. 

And because companies often take payments straight from the consumer’s card, if the first try fails, they can try again. This can bring people into their overdrafts or result in insufficient funds for essential bills, said Debt Free Advice.

What regulatory changes are incoming? 

Efforts to regulate BNPL have been in the works for some time, and in July, it was announced that from July 2026, BNPL will be subject to the same protections as other forms of credit. 

Debt Free Advice explained that the new rules will require BNPL firms to review whether consumers can afford payments, while also clearly explaining their terms.

The regulations mean that customers will have faster access to refunds and the right to complain to the Financial Ombudsman to ensure complaints are dealt with fairly. 

“Regulation will help make these services safer and more transparent”

The changes will also reduce what Trevethick called “excessive” marketing at checkout and provide consumers with “additional protections at a time when they are most needed, as cost of living pressures remain.”

Indeed, Debt Free Advice noted that linking BNPL to credit agencies can help “stop people from borrowing too much or harming their credit score without realising.”

That said, it shared concerns about how strong the new rules will be during the changeover, adding that lenders should do more, including by pointing people to free debt help early, before “problems get worse.”

“We’ve seen a sharp increase in clients coming to us with BNPL-related debt. Regulation will help make these services safer and more transparent—but education is still key,” said Dronfield.

How can consumers protect themselves against unmanageable debt? 

With a year until the BNPL regulations come into place, debt charities warn that users need to ensure that they’re using products safely and sustainably. This includes changing the way that consumers approach this kind of credit.

“If you wouldn’t use a credit card for the purchase, reconsider BNPL,” said Debt Free Advice. 

Likewise, it’s important to assess whether BNPL is an affordable option.

“While it’s an interest-free product, if you miss a payment then you can still get struck with late fees, so it is essential to make sure that any BNPL repayments will be affordable before using the product,” said Trevethick. 

Once taking on BNPL, Debt Free Advice said it’s key to track, budget, and plan. This means keeping careful watch of all your BNPL commitments, how much you owe and the due dates for each to “avoid accumulating debt.” 

Keeping to one provider can also help users avoid stacking multiple purchases, the charity said. 

Trevethick echoed this: “At StepChange, we have seen clients with multiple BNPL debts across different providers.”

Debt Free Advice also warned against relying on BNPL for necessities: “It’s a sign you may need debt advice.” 

And, if you’re struggling with repayments, contact a free, impartial debt advice service:

• Debt Free Advice
• StepChange 
• Citizens Advice 
• National Debtline 

 

Tags: BNPL, Buy Now, Loans, Pay Later

The ins and outs of Equity Release

by Madaline Dunn

According to research, the number of new and returning equity release customers reached 93,421 in 2022, meaning more people are choosing these products and it’s likely that the cost of living crisis has something to do with it.

Legal & General, for example, which is one of the UK’s largest equity release lenders, outlined that 25% of those taking out loans are now doing so to supplement their income; this is reportedly up from 19% in the previous year.

You might be wondering whether equity release is a good option for you, or you may be new to the term and keen to learn more; either way, at The Salary Calculator, you’re in good hands. This week, we’ll explore the following:

• What equity release is and the different types
• The advantages of equity release
• The drawbacks
• The Equity Release Council’s new guidance

What is Equity Release?

Equity release products enable you to access the equity (money) tied up in your home as you get older. There are two main types of equity release, the first being Lifetime Mortgages, which allow you to take out either a lump sum or instalments of cash against the value of your home, while retaining ownership. Typically, you can borrow between 20% and 50% of your home’s valuation, and the amount you can take out, will depend on your age.

You can begin to access these plans from age 55. Interest is applied on an increasing sum, meaning that your interest is added to your debt on a continual basis. That being said, you’ll never pay more than the value of your home. The loan and any interest will be paid off by selling the property when you either pass away or move into long-term care. Statistics show that these kinds of equity-release products make up around 95% of the market.

Home reversions, on the other hand, are offered to those aged 60 and up, and with this product, you don’t retain ownership of your home, or at most, only part of it (between 25% – 100% is sold). While you give up full ownership of your house with home reversions, you maintain the legal right to remain in your home until you die or move into long-term care. Likewise, your lender will pay you less than the market value of your home.

To find out which equity release product best suits your needs, it’s worth speaking with an equity release advisor; if you choose to take one out, you’ll have to do it through a financial adviser, too. The former will take into consideration a number of different factors in their recommendation to you, including:

• The value of your property
• Your current and future financial and lifestyle requirements
• Your age

The advantages of equity release

When it comes to assessing the advantages of equity release, it’s worth noting that in both versions of equity release, any of the cash that you receive is tax-free, and you won’t find yourself in negative equity because, when your property gets sold, additional debt not covered by the property sale will be written off. Likewise, you can take money out of your home when you need it, and aren’t required to make monthly repayments.

Further, you also have the right to move home, and take your mortgage with you, so you’re not bound to one property.

Similarly, with both, you can opt to pay back your loan or buy back your home, however, it’s worth bearing in mind that this can cost you quite a bit. The same goes for paying your loan off early, it is doable, but you may be hit with early repayment charges.

The drawbacks

While there are undoubtedly some attractive qualities to equity release, there are some downsides, too, which are worth taking into consideration. With lifetime loans, for example, you could end up in a position where you owe more than you borrowed when the home comes to being sold. Although, there are ways out of this, and you can decide to pay off the interest each year as you go. To make things more bitesize, you can also opt for a series of smaller lifetime mortgages.

When it comes to equity release, you may also impact your entitlement to mean-tested state benefits, this includes Pension credit, savings credit and council tax benefit, so be wary. You will also encounter lender fees, solicitor fees, and equity release advisor fees; expect to spend between £2,000 and £3,000.

More generally, opting for equity release also means that you might leave behind less inheritance for your family when you pass on.

With home reversion, on the other hand, you can only receive a maximum of 60% of the market value of your home, and in more cases than not, it will actually be much less than this.

Equity Release Council releases new guidance

When thinking about pursuing equity release, you can be safe in the knowledge that all firms that either advise on or sell equity release are regulated by the Financial Conduct Authority (FCA). That being said, it’s wise to make sure you go with a company that is a member of the Equity Release Council. Members follow a voluntary code of conduct, which ensures certain product standards.

There have been recent updates in this area, too. The council recently released its consumer guide, which advises potential customers on fees, enabling them to understand what they mean and compare fees and charges across different equity release deals. The council is also recommending that equity release advisors adopt the language in the guide to simplify things for customers and make it more accessible. The guide can be found here.

Speaking about this, Jim Boyd, CEO of the ERC, explained that customers are often presented with unfamiliar terms and definitions, and to complicate matters further, different firms often use slightly different language, which can complicate things for customers.

He outlined: “The council’s guidance describes all the fees and charges that could be relevant to an equity release application, depending on its complexity. Our aim is to establish a set of standard definitions to help consumers to understand their options as they explore the equity release process with a regulated adviser.”

He added that the council understands that adopting changes takes time, but that the arrival of the “Consumer Duty” is a chance for the industry to take stock and “move towards a standardised approach.” “We hope all firms will take this guidance on board when they next revisit their approach, so it becomes the standard across the equity release market,” he said.

Tags: Consumer goods, Equity release, home, Loans

Credit scores unpacked and myths debunked

by Madaline Dunn

With the cost of living crisis shooting up rent, food and fuel prices, an increasing number of people are turning to loans, credit cards, and overdrafts. Of course, a good credit score is often required to qualify for a low-interest-rate loan, so many people are now trying to determine what their credit score is and find ways to improve it. In fact, MoneySuperMarket’s data reveals that searches for ways to increase credit scores have increased by 506% in the last ten years alone.

However, despite so much hinging on a credit score, many people in the UK believe that the current system is not “fit for purpose.” Nearly 40% (39%) of people believe it’s unfair to judge a person based on financial decisions that they made up to five years ago, while 38% believe that credit scores don’t reflect their current livelihood and 34% believe that credit scores, in general, aren’t a good measure of a person’s creditworthiness. In general, credit scores can cause people a lot of concern and there are a lot of myths and misconceptions out there.

At The Salary Calculator, in this article, we’ll:

• Explain what a credit score rating is
• Dispel some of the myths that exist around credit scores
• Explore some of the ways you can improve your credit score

What is a credit score rating?

A credit score rating, at its core, is a way of measuring how much of a risk a person is when it comes to lending them money. FICO and VantageScore are the two main consumer credit scoring models, while Experian, TransUnion, and Equifax are the three national credit bureaus that offer different ratings. The former, for example, considers anything above 881 to be a good score, while the latter considers anything above 531 ‘good.’ TransUnion, on the other hand, considers scores above 720 a good rating.

A credit score rating is determined by a number of different factors, including:

• Your payment history – This means looking at whether you pay your bills on time and whether you’ve ever filed for bankruptcy. This is arguably the most important factor considered when calculating your score.
• Credit usage – This includes how much you owe in loans and how many of your accounts have balances.
• Length of your credit history – Money lenders like to see that you have a long history of paying on time.
• New credit – Applying for new credit can lead to a hard inquiry and lower the average age of your accounts.

Myths and misconceptions

When it comes to credit scores, many people are truly in the dark, and due to the myths and misconceptions floating around, just the mention of credit scores can cause people to spiral. Below we’ve compiled a list of the top myths:

Checking your credit score will negatively impact it – False

You can check your credit score as much as you like without it negatively affecting it. In fact, it can even be an indicator of financial responsibility.

Your credit score is impacted by your income – False

Your credit score is not impacted at all by your income and, in fact, only considers information found in your credit report, so, as outlined above: Your payment history, credit usage and length of your credit history. That said, if you were to lose your job or take an earnings hit, this could affect your rating indirectly in that it could detrimentally impact your ability to pay back your loans.

Paying off debt means it won’t affect your credit score – False

Unfortunately, even if you’re proactive in paying off your debt, the record of it can remain in your credit history for seven to 10 years.

My loan application will be rejected if I have a low credit score – Not always

You won’t always get a loan application rejected if you have a low credit score. However, you might be offered higher interest rates or a smaller loan.

How can you improve your credit score?

If you have a low credit score and you’re concerned that it’s going to detrimentally impact your future financial decisions, don’t worry, there are a few things that you can do to boost it.

First of all, it’s a great idea to keep up-to-date with how things are looking, so the experts suggest signing up with a tool like MoneySuperMarket’s Credit Monitor. This way, you’ll be able to check whether or not you’re veering into the red, and employ some of the below steps to steer you back on track.

Likewise, it’s important to keep your accounts up-to-date. So, if you’ve got an old bank account that hasn’t been used for years, it’ll be better for your rating if you close it. On the other hand, keeping open a bank account that you regularly use will positively impact your credit score.

Of course, paying bills on time is a big must for boosting your credit score, but be sure to check which ones count towards it – as only some of them do. And, also don’t forget to try and keep balances low on your credit cards, and try your best to pay more than the minimum required on your credit card, too.

Tags: Credit card, Credit score, Economy, Loans