Credit is your ability to borrow money from lenders, such as a bank or a building society, who will make a decision to lend to you based on their confidence that you’ll be able to pay them back what is owed, along with any pre-agreed to charges that may apply.  

There are many reasons you may want to use credit. Credit can provide security and convenience to your spending when used responsibly, such as using a credit card to spend at a time that suits you, or taking out a loan to make big purchases.  

It’s also important to use your credit responsibly, as your track record of how reliable you have been in paying back the money you owe may affect your ability to borrow money in the future.  

Lenders will use a variety of factors to assess how likely it is you’ll pay them back. One indicator they may use is your credit score, which in the UK will likely be provided by one of the three main credit bureaus: Transunion, Equifax, and Experian. There are a number of factors that are considered in calculating your credit score, such as: 

• How many personal loans you have and how much of them you’ve currently paid back 
• How many credit card accounts you hold, including their limit and any outstanding balances 
• Whether you’ve made your payments on time, or have missed them 
• Any serious credit problems you may have had in the past, such as bankruptcies. 

The credit bureaus will take this information and assign you a numerical score, which they will share with lenders when you make an application for credit. This information may help them make an informed decision on your reliability as a borrower. 

If you’ve previously missed a payment or made a payment late, this will suggest to lenders that you may be less likely to pay back your debts. You may be less likely to be approved for credit in the future, offered higher interest rates which will make the cost of borrowing more expensive, or allowed only a lower credit limit. 

Whilst using credit can be beneficial, always borrow responsibly. Consider carefully when applying for credit and don’t borrow more than you can comfortably afford to pay back to avoid incurring interest and potentially impacting your score. 

No one plans to be in debt, but always be aware of the risks of borrowing too much. This means spending within your means at a time that’s more convenient for you, and paying back what is owed when it’s due. If you’re experiencing difficulties with paying off your balance, there are a number of charities and companies that may be able to offer support:

Payplan: 0800 280 2816
www.payplan.com 

Citizens Advice: 0800 144 8848
www.citizensadvice.org.uk 

National Debtline: 0808 808 4000
www.nationaldebtline.org 

Stepchange Debt Charity: 0800 138 1111
www.stepchange.org 

MoneyHelper: 0800 138 7777
www.moneyhelper.org.uk