Credit Awareness Week is back for its second year and is once again led in partnership by Credit Strategy and Experian. Steve Thomas, managing director of strategy for Experian, discusses data’s role in credit awareness.
The highest quality decisions are made on lending when there is a comprehensive set of relevant data available.
Unfortunately, for millions of people in the UK, a lack of information might be hampering their access to appropriate mainstream financial services, leading to a scenario where people could pay more for goods and services and have less choice.
Our analysis, which was conducted ahead of Credit Awareness Week, has found there are over four million ‘thin-file’ consumers in the UK. Of those four million, an estimated 1.2 million are in categories whose household income is forecast to contract over the next few years.
These people in the ‘squeezed middle’, who are working and earning, but often struggle to make ends meet each month, would be among the most affected by an economic slowdown.
When people apply for credit, lenders call upon your credit report from one or more credit reference agency to help decide whether to lend. While many people’s reports contain a wealth of relevant information on which to base a decision, there are people who have so called ‘thin files’, and some who have no ‘file’ at all.
The obvious ‘thin file’ impact is low credit score and limited borrowing options, certainly at competitive interest rates. It can also hamper online identity verification, making it difficult to access a wider range of services, including those provided by the public sector.
We believe that this group’s financial situation could be significantly helped through the availability of new, relevant data sources, to build out those thin files, improve their financial access and, therefore, help deliver better outcomes for people.
We have pushed for new, more appropriate data sources to be brought into the equation. For example, our work with The Big Issue Invest on the Rental Exchange, which will recognise rent payments on credit reports for the first time, means that, as things currently stand, 1.2 million social housing tenants are in line to benefit and we expect 83% to see a noticeable improvement to their scores as a result of this new data.
The launch of Open Bank APIs into the UK banking system is also a landmark event, offering up additional, relevant data sources that can drive better decisions, wider financial access, more tailored product and a better customer experiences.
It is incumbent on all of us – the business community, policy makers, regulators, consumer groups – to work together to help people understand what information exists about them, where it goes, what it means, and how they can use it to better their own situations.
To me, that is what Credit Awareness Week is all about and will give us, as an industry, the opportunity to look at what we can do to help deliver better results for our customers, whether that be through new technology, new data sources or more affordability-focussed lending decisions.