Finance providers have a tricky balance to strike. They’re under increasing pressure to consistently deliver on their responsible-lending commitments. This is to ensure they’re not giving credit to customers who’ve already got as much as they can afford, or treating them unfairly by not giving them credit when they can afford it.
They have a moral responsibility to ensure affordable and appropriate credit is accessible for everyone — particularly when it comes to safeguarding society’s most vulnerable.
Data has long played a vital role in helping lenders make the right lending decisions. They provide factual information that helps businesses, including banks, building societies, finance houses, mobile phone companies and major retailers, to quickly make fair, consistent and responsible lending decisions.
But what do you do when that sort of information isn’t available? Credit account data plays an extremely valuable role but it can’t be the answer when it comes to the UK’s estimated 1.2 to 1.5 million ‘unbanked’ residents. They’re people who don’t have a bank account, don’t use credit products such as credit cards, loans or bank accounts, and who as a result have been marginalised and face financial exclusion.
That’s why developments are underway to address this and turn exclusion into inclusion particularly for some of the most vulnerable members of our society. For example, CRAs have been on a mission in recent years to expand data sharing and find new sources.
For instance, speaking to utilities providers (domestic energy, water, telephone, TV and broadband). This is important because it gives individuals the opportunity to show how they manage those accounts – a very good indication of their creditworthiness that can help them to be accepted for credit from a wider range of providers and often, to access more affordable deals.
And because this information is increasingly used to help confirm customers’ identities, it will help protect more people and organisations against ID theft. It will also reduce the need for paper-based proof of ID, which, historically, some people have struggled to produce, cutting them out of some services.
Another landmark development is the inclusion of social housing tenants’ rental payment information on their credit reports – another good indicator of credit worthiness. It’s known as the ‘Rental Exchange’, something we’ve developed with Big Issue Invest, the social investment arm of the charity The Big Issue.
We’re working to bring all these changes to life and to educate the public on these seismic shifts. We need to help them understand both the opportunities and the costs if they don’t manage their accounts responsibly. But also to recognise that properly-used credit data is good for them as well as the businesses they borrow from.