How the evolution of credit scores is tackling financial exclusion  

Against a backdrop of rising living costs, it’s more important than ever for people to get themselves into the best possible financial shape to navigate the potential challenges ahead. Maintaining a good credit score is a key part of that, as it can open doors to better products and services and help individuals achieve their financial goals. 

However, for some people it’s not that simple as a lack of credit history makes it difficult for them to access mainstream affordable financial services or they have to pay a premium to do so. At Experian, we estimate that there are around 4-5 million UK adults in this position, meaning they will have limited or no access to formal credit options. They are ’invisible’ to the mainstream credit economy. 

Tackling this issue is a huge priority for us, and we’ve been working hard to find innovative ways to bring more people into the mainstream financial system. For me, the solution to this challenge lies in a combination of industry-led financial education coupled with the use of new, relevant data sources which can help build out credit files which deliver better financial products and services for everyone. 

This year’s Credit Awareness Week in partnership with Credit Strategy is, therefore, a great opportunity for us to redouble our efforts to raise levels of public understanding and engagement, while also providing an important platform to take that conversation more widely to our industry partners. 

Now in its seventh year, the campaign aims to help improve understanding about how credit information works, and dispel common myths around credit scores and reports which could usefully help consumers to improve their financial position.  

But education is not enough on its own. Industry change is needed to tackle credit invisibility with the use of new, relevant data sources. This isn’t something we can do alone though – we need organisations to consider what new data they might be able to contribute to Experian and what they can do with the information they already gather, as well as how to improve the quality of their current data. 

Over the past year, we have successfully worked with the industry to introduce new data sources to add financial information about credit invisibles to the bureau. 

For example, Experian is currently working with BNPL companies to bring their customer agreements onto credit reports, with accounts from several large providers now live on its credit bureau. This is the latest step from us to introduce new data sources onto the bureau, which could be hugely beneficial to the credit invisibles population. 

Open banking, which has the potential to facilitate authorised data sharing between financial services providers, is another tool that can be crucial in helping lenders to make more informed decisions about people. For example, Experian Boost, which is powered by open banking, has helped people to potentially tip the balance between being marginally refused and accepted for credit. 

Further to this, we are also piloting an exciting new initiative which will help people with no credit history to access fair and affordable credit for the first time.   

New to credit consumers – often people who are also new-to-country, like recent immigrants - will be able to confirm their identity and build their credit files using just three months of transactional data, provided via open banking, taken directly from their bank account. Consumers will also be able to build their files by signing-up with selected credit providers, enabling them to generate a score in as little as three months.  

This new concept is part of Experian’s Social Innovation Programme, which aims to build and recognise products that will have a positive impact on the financial health of consumers around the world.   

The world is changing at a faster pace than ever before, and people’s finances are moving at the same rate. It’s important that as an industry we are doing all we can to keep pace, equipping consumers with the knowledge and tools to help them manage their finances effectively.  

However, that’s only possible if we work together. By doing this, we can bring more people into the mainstream financial system, tackle exclusion and prevent unaffordable lending.