Many borrowers have used lockdown to get on top of debts, analysis finds

Average non-mortgage debts have fallen during the coronavirus lockdown as borrowers have sought to reduce the amounts they owe, analysis by a credit checking company has found.

Experian customers had an average credit balance across all credit accounts, excluding mortgages, of £9,681 in June, compared with £11,615 when the lockdown started in March.

It said the findings suggest some borrowers took the opportunity to use savings made by reduced spending to get their finances in order and improve their credit score.

The average length of time people held a credit account was another common positive factor influencing scores in June.

Two-fifths (41%) of Experian CreditExpert customers had mature credit accounts that have been held on average for 34 months or more, demonstrating a proven credit history to lenders.

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.”

Experian said the proportion of available credit that someone is using can be one of the biggest factors affecting a credit score.

High credit utilisation can suggest someone is more of a risk and may therefore have a negative impact on a score. Reducing balances across credit accounts can have a positive impact on someone’s credit report.

Mr 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.”

Lenders are currently offering payment holidays on mortgages and other types of loans for borrowers whose finances have been temporarily affected by coronavirus.

Here are five tips from Experian for improving a credit score:

1. Register on the electoral roll at your current address. As well as helping confirm your name and address, this contributes points to an Experian credit score because it is seen as a sign of stability and reliability.

2. Check your credit report regularly and ask for any errors to be corrected. 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.

4. Limit applications for new credit. Space out any credit applications you make and shop around using eligibility checking services. That way, you will only apply for deals you are likely to get and avoid collecting multiple “hard” search footprints.

5. Consider allowing your credit history to mature. While it is sensible to shop around from time to time to make sure you are 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 an Experian credit score.