Does Monzo Affect Your Credit Score?

How Monzo May Impact Your Credit Score

While a standard Monzo account won't directly impact your credit score, using its lending products can. Here’s a look at the progression of how Monzo might influence your credit history.

1. Opening an Account: Setting up a standard Monzo current account typically only requires a soft credit check for identity verification. This check is not visible to other lenders and does not affect your credit score.
2. Applying for Credit: When you apply for a Monzo credit product, such as an overdraft, loan, or Monzo Flex, the bank performs a hard credit check. This inquiry is logged on your credit file and can cause a minor, temporary dip in your score.
3. Responsible Borrowing: If you use a Monzo credit facility, your repayment history is reported to credit reference agencies (like TransUnion). Making timely payments demonstrates financial responsibility and can help build a positive credit history over time.
4. Missed Payments: Failing to make payments on time for any Monzo credit you use will also be reported. Late or missed payments can significantly lower your credit score and may remain on your file for years.

How Much Will Monzo Affect Your Credit Score?

The extent to which Monzo affects your credit score depends on how you use your account and its features. Here are the key factors to keep in mind.

• Soft vs. Hard Checks: Opening a current account usually only requires a soft check, which isn't visible to lenders. Applying for credit products like an overdraft will result in a hard check, which can temporarily lower your score.
• Credit Reporting: Monzo reports your account management, especially overdrafts, to the main credit reference agencies. Positive history can build your score, while missed payments will negatively impact your credit file.
• Using Credit Products: How you manage Monzo's credit products, like Flex or loans, directly impacts your score. Making timely repayments can help improve it, but defaults will cause significant damage to your credit history.

How You Can Avoid Monzo Affecting Your Credit Score

Use It as a Secondary Account

Consider keeping your primary current account with a traditional bank for your salary and direct debits. Using Monzo solely for daily spending or budgeting can limit its visibility on your credit file, especially if you avoid applying for any of its credit-based features.

Steer Clear of Credit Features

The most direct way to prevent Monzo from impacting your credit score is to not use its credit products. This includes avoiding the overdraft facility, Monzo Flex, and any personal loans, as these are the primary activities reported to credit reference agencies.

Maintain a Positive Balance

Always ensure your account has sufficient funds to cover your transactions. Regularly dipping into an unarranged overdraft, even for small amounts, can be viewed negatively by lenders and may be reflected on your credit report, signaling poor financial management to them.

Ways to Improve Your Credit Score

Improving your credit score is not just a pipe dream; it's an achievable goal that requires consistent, positive financial habits. While it's a gradual process, taking the right steps can lead to meaningful changes in your score within a few months.

• Monitor Your Credit Reports. Regularly check your free credit reports from all three major bureaus—Experian, TransUnion, and Equifax—to spot and dispute inaccuracies or signs of identity theft.
• Set Up Automatic Bill Payments. Your payment history is the most significant factor in your score, so setting up automatic payments is a simple way to ensure you never miss a due date.
• Reduce Your Credit Utilization Ratio. Aim to use less than 30% of your available credit, as high utilization can signal financial distress to lenders and lower your score.
• Become an Authorized User. Ask a trusted friend or family member with a strong credit history to add you as an authorized user on one of their accounts to benefit from their positive payment record.
• Diversify Your Credit Mix. Lenders like to see that you can responsibly manage different types of debt, so having a mix of revolving credit (like credit cards) and installment loans can help your score.
• Limit Hard Inquiries. Applying for too many new credit accounts in a short time can temporarily lower your score, so space out applications and use prequalification tools when possible.

The Bottom Line

A Monzo account alone won't impact your credit score. But, like any bank, using credit facilities such as overdrafts or loans will be reported and can affect your credit history.

Frequently Asked Questions

Does opening a Monzo account affect my credit score?

Opening a standard Monzo current account only requires a soft credit check, which does not impact your score. A hard check is only performed for credit products.

Does using a Monzo overdraft affect my credit score?

Yes. Using your overdraft responsibly can help build a positive credit history. However, missed payments or exceeding your limit will negatively impact your credit score.

Does Monzo report to all UK credit reference agencies?

Yes, Monzo reports your account activity, including overdrafts and loans, to all three major UK credit reference agencies: Experian, Equifax, and TransUnion.