If you know your credit score, you’re in the minority, according to a new UK poll which has revealed an “alarming” ignorance among the under 30s of the credit ranking which often governs financial life
More than half (52%) of all adults in Scotland have no idea what their credit score is, yet nearly a quarter (23%) expect to borrow money in the next two years, according to a new study.
A fifth (19%) of all Scots don’t even know what a credit score is, says Big Data Scoring, which commissioned the YouGov research.
The survey, which examined the financial lives of young adults aged 18 to 29 (aka the ‘millennials’) to see what challenges they face when borrowing and paying off their personal debts, revealed that this generation are more likely to have a cash ISA (34%) than a credit card (29%).
It found that a third have no debt at all (33%), while nearly a quarter (24%) are carrying £10,000 or more of debt. A quarter (25%) had been declined a financial product or loan.
According to credit score specialist Big Data Scoring, one reason so few young people have credit cards could lie in the challenge faced by financial institutions in doing a credit check on someone who, in essence, has no credit history. While some countries start people off from the median (in essence an average credit score), in the UK you start off with a poor credit score and have to build it up. For the young – or an immigrant into the UK – that means you start off in a bad position.
It says one solution is to do intelligent research of a loan applicant online, to help build a clearer profile which helps assess their creditworthiness.
While only 5% of those under age 30 said they would be comfortable with this, that figure soared to 22% if people thought it could mean a better rate of interest or a favourable financial deal.
The study’s regional revelations revealed that young people in the East of England have the lowest levels of debt, with almost two fifths (38%) having no debt at all, while millennials in Scotland have the lowest levels (6%) with debts of £20,000 or more.
More than one in eight (13%) of young people in the North of England claimed to not have any financial products – not even a bank account – almost quadruple the British average of 3%.
Big Data Scoring says that, given the current need to have some kind of financial history to get credit, these people could find themselves in a no-win situation, unable even to open a current account at the bank.
Erki Kert, CEO at Big Data Scoring, said: “Young people have come into adulthood with an almost immediate online presence, unlike previous generations. We have seen this can be as much, sometimes more, of a barometer of their creditworthiness as the traditional approach applied to older people. Increasingly, banks are starting to use this alternative source of information to support with their credit checking; it may eventually become an industry standard.“
For some people, the problem isn’t getting too little credit, but too much. One in ten (11%) of those with debt aged under 30 thought they would never be able to repay all their debt, while more than one in seven (16%) envisage it would take 20+ years to clear it. A similar figure (18%) thought it would take between 10 – 20 years. Altogether that’s more than a third (34%) of millennials carrying debt for over a decade – and this figure excludes mortgages.
Kert continued: “Too much credit is a consequence of the current failings when it comes to credit scoring young people and highlights the need for action to ensure people are given what they need but also what they can afford.”