Five million people are fighting for access to financial products and public services because there is not enough information about their credit record.
These so-called “credit invisibles” include those with low incomes, young people without an established credit score, recent immigrants and expats, and elderly people who have limited credit and therefore no file, according to data shared exclusively with. The Independent by Experian.
There are also major information gaps when it comes to credit scores.
Common misconceptions about credit scores include 73 percent of people who believe a credit blacklist exists, while one in four believe that credit reference agencies decide whether people are eligible for credit cards.
In the Experian’s 2,050 study, 14 percent mistakenly believed that controlling their own credit score could affect it, and 34 percent thought a former owner with a bad credit history could negatively affect their own credit history.
But there is no blacklist, it is lenders who make decisions based on information about a credit report, and even those with a history of bad loans can still be accepted, only with a lower credit limit and a higher interest rate.
Lenders also not only rely on a person’s credit score to make a decision, they use the information provided along with details on an application form. There is also no universal credit score, every credit reference agency gives a score based on several factors.
The fact that so many are confused about how credit scores work is a worrying sign that they can negatively impact their own without realizing it.
This, combined with research showing that 5,049,129 have limited or no credit history, means that these people are more likely to turn to more expensive, unregulated options if they are rejected by mainstream providers because they do not have a decent credit score.
This is especially important at the moment, as prices are rising on everything, inflation is rising, and people are being forced to use credit to cover higher prices.
However, there are some positive signs. When the company first conducted this study in 2017, 80 percent thought a credit blacklist existed and 32 percent thought a credit reference agency decided the outcome of a credit card application.
Experian also says through the work including the adoption of open banks, the number of people known as credit invisibles has been reduced by 750,000 since 2018.
Jose Luiz Rossi, Managing Director of Experian UK&I, said: “When we emerged from the pandemic, with a cost-of-living crisis facing us, credit education was never more important.
“Especially when you look at the results of our consumer survey and see, for example, 73 percent of respondents who think there is a mysterious ‘credit blacklist’ that prevents them from getting credit. We have a duty to dispel these myths and to promote consumer confidence with credit.
Along with the pandemic in the current economic situation, part of the problem is also a lack of financial education.
In the last two years, the number of young people who have not received any financial education has increased by 17 percent, according to a separate study of 2,000 16- to 25-year-olds for ComparetheMarket and the financial education charity MyBnk.
Before March 2020, 67% had no financial education and this increased to 84%.
Debt has also risen for this group to an average of £ 948, from £ 361, and a quarter of respondents said they feel less confident about managing their money now.
Nearly a quarter said the pandemic meant they did not have the opportunity to learn how to manage their money, in part because 37 percent were unable to get a full-time or part-time job.
Guy Rigden, chief executive officer of MyBnk said: “The pandemic has made the financial challenge even greater for young adults, especially those from lower income households who are disproportionately affected by reduced employment prospects and interrupted education.
“Financial education is essential to navigating the rise in cost of living and risks associated with buy-now-pay-speed schemes and investing in volatile assets such as cryptocurrencies.”
There are many free financial training resources available. MyBnk has free download financial education programs for young people in schools and youth organizations, while MoneySavingExpert has a financial education book that can be downloaded for free.
Many high street banks also offer free resources to help with money management that are not only available to their customers.
There are also many ways to improve your credit score and learn more about how it affects your ability to use and manage your finances. Signing up for the voter list, opening an account, and making sure a few household bills are in your name, helps everything.
A credit builder card is another option, as you contribute your rent payments when you are a tenant in your credit report.
Organizations including Citizens Advice and StepChange are free to contact for advice with money or if you are struggling financially.
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