Millions getting the basics wrong on credit scores and cost of borrowing

More than 12 million adults with credit products aren’t confident they understand APR, one of the most important measures of borrowing cost, according to new research from Creditspring.

The data also suggests that millions of UK adults are using loans, credit cards, and Buy Now, Pay Later (BNPL) products without fully understanding key terms or the impact on their credit scores.

The data follows FCA analysis, which found that around 84% of adults have used some form of credit in the past year. The new research shows just 28% say they are ‘very confident’ they understand APR, while 26% are not confident at all. This means around 12 million UK adults may not fully grasp what APR means for the money they’ve borrowed.

The data found that around a quarter (25%) of Brits mistakenly believe “0% interest” products come with no risks or costs, ignoring late fees or charges that can still apply. Given that more than eight in ten adults currently hold some sort of credit, this suggests around 11.6 million currently holding credit do not understand what 0% interest means.

The findings are similar when it comes to Buy Now, Pay Later (BNPL). FCA data suggests 20% of adults have used BNPL in the past year, yet the research shows that one in three (34%) people mistakenly believe it is currently fully regulated – around 3.6 million people who have at least one BNPL loan at present may wrongly believe they are protected by full regulation, which will not come into force until July 2026. Further, almost a quarter (23%) of Brits wrongly believe that using BNPL products does not affect their credit score, while 28% admitted to not being sure whether the products did or did not affect their score.

However, the research also reveals widespread confusion about the fundamentals of how credit scores work – including what does and doesn’t impact them. While most people correctly identified that missing loan repayments (72%) and paying bills late (70%) damage your credit score, there are major gaps in understanding beyond this.

More than half (53%) of adults wrongly believe their salary or income directly affects their credit score, while 44% think renting instead of owning a home makes a difference – neither of which are true. Nearly three in ten (29%) also incorrectly believe their postcode impacts their score. Further, less than half (44%) correctly identified that being on the electoral roll affects your score, and that using multiple names – such as married or maiden names for official documents – affects your credit score (46%).

There is also confusion around more nuanced factors. Just 58% correctly identified that how much of your available credit you use affects your score, and only 54% recognised that the length of your credit history plays a role. Meanwhile, understanding of more complex behaviours is mixed, with only 37% aware that closing old credit accounts can impact your score.

Affordability is another area where misconceptions are common. The data shows that 32% of adults wrongly assume that credit approval means a lender has confirmed they can comfortably afford repayments. In reality, approval usually only confirms that certain lending criteria have been met.

Confidence in understanding repayment amounts and interest-free periods is higher, but only 65% feel confident about affordability checks and 48% about deferred payment credit, suggesting many are navigating borrowing without a full grasp of the risks.

Neil Kadagathur, CEO of Creditspring, said “Credit has become faster and more widely available than ever before, but consumer education hasn’t kept pace. Our research shows that people aren’t making reckless decisions; they’re making decisions without being given the full picture.

“Closing this financial literacy gap must now be a priority. Lenders, regulators and policymakers all have a role to play in making credit simpler, more transparent and easier to understand, so people can make informed decisions with confidence. When key concepts like APR or total cost aren’t clearly understood, it becomes far easier to misjudge risk and fall victim to financial instability through no fault of their own.

“What’s particularly concerning is the confusion around credit scores. Many people believe factors like income or where they live determine their score, when in reality it’s driven by behaviours, such as repayment history and how credit is used. That misunderstanding can lead to poor decisions or unnecessary confusion and anxiety about borrowing.”