Millions of people excluded from financial services because they have no credit history

Five million people struggle to access financial products and public services because there is not enough information on their credit report.

These so-called “credit invisibles” include low-income people, young people without an established credit score, recent immigrants and expats, and seniors who have limited credit and therefore no record, according to data shared exclusively. with The Independent by Experian.

There are also major information gaps when it comes to credit scores.

Among common misconceptions about credit scores, 73% of people believe there is a credit blacklist, while one in four believe credit reference agencies decide whether people are accepted for cards credit.

In the study of 2,050 people by Experian, 14% mistakenly thought checking their own credit score could have an impact, and 34% thought a former occupant with a bad credit history could have an impact. negative on their own credit history.

But there is no blacklist, lenders make decisions based on information from a credit report, and even those with a history of bad borrowing can still be accepted, just with a limit of lower credit and a higher interest rate.

Lenders don’t just rely on a person’s credit score to make a decision, they use the information it contains along with details from an application form. There is also no universal credit score, each credit reference agency gives a score based on different factors.

The fact that so many people are confused about how credit scores work is a worrying sign that they could be having a negative impact on theirs without realizing it.

This, combined with research showing that 5,049,129 have limited or no credit histories, means these people may be more likely to turn to more expensive, unregulated options if they are turned down by traditional providers because they don’t have a decent credit score.

This is especially important right now, as prices rise on everything, inflation soars, and people are forced to use credit to cover higher prices.

Still, there are positive signs. When the company first conducted this study in 2017, 80% believed there was a credit blacklist and 32% believed a credit reference agency decided the outcome of a credit card application. .

Experian also claims that through work such as the adoption of open banking, the number of people known as credit invisibles has shrunk by 750,000 since 2018.

Jose Luiz Rossi, Managing Director of Experian UK&I, said: “As we emerge from the pandemic, with a cost of living crisis facing us, credit education has never been more important.

“Especially when you look at the results of our consumer survey and see, for example, 73% of respondents believing there is a mysterious ‘credit blacklist’ that prevents them from getting credit. We have a duty to dispel these myths and promote consumer confidence with credit.

Besides the pandemic and the current economic situation, part of the problem is also a lack of financial education.

Over the past two years, the number of young people who have received no financial education has increased by 17%, according to a separate study of 2,000 young people aged 16 to 25 for ComparetheMarket and financial education charity MyBnk.

Prior to March 2020, 67% had received no financial education and this figure rose to 84%.

Debt has also risen for this group to an average of £948, from £361, and a quarter of those surveyed said they felt less confident about managing their money now.

Almost a quarter said the pandemic meant they hadn’t had the opportunity to learn how to manage their money, in part because 37% were unable to secure full-time employment or part-time.

Guy Rigden, Managing Director of MyBnk, said: “The pandemic has made the financial challenge even greater for young adults, especially those from low-income households who are disproportionately affected by diminished job prospects and interruption of education.

“Financial education is key to dealing with the rising cost of living and the risks associated with buy-it-now-pay-later schemes and investing in volatile assets such as cryptocurrencies.”

There are many free financial education resources available. MyBnk offers free downloadable financial education programs for young people in schools and youth organizations, while MoneySavingExpert offers a free downloadable financial education manual.

Many street banks also provide free resources to help with money management, which are not only available to their customers.

There are also many ways to improve your credit score and learn more about its impact on your ability to use and manage your finances. Registering to vote, opening a checking account and ensuring that some household bills are in your name will help.

A builder’s credit card is another option, as is adding your lease payments if you’re a tenant to your credit report.

Organizations including Advice to citizens and Stage change are free to contact for advice with money or if you are in financial difficulty.

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