Credit education has never been so important, says Experian CEO

For six years Credit Strategy and Experian have been working together to better understand the UK’s knowledge about credit and what can be done to improve financial lives.

Credit Awareness Week is an annual campaign, held between 21 and 25 March, designed to empower consumers to improve their financial futures by helping to understand their credit information.

The campaign’s centrepiece is a survey of more than 2,000 UK adults which has been conducted by YouGov to unearth how Covid-19 affected their behaviour to check their information and the general willingness to share data under open banking.

Analysis of the survey results will be published exclusively in the next issue of Credit Strategy’s magazine and also be shared at the Parliamentary Reception taking place during Credit Awareness Week.

However, following a sneak peek at the results, Credit Strategy’s Amber-Ainsley Pritchard (AAP) spoke to José Luiz Ross, Experian’s chief executive of UK and Ireland, on credit reference agencies’ duty to help educate the UK, a need for “symmetry” between consumers and lenders and how we can compare credit profiles to CVs.

AAP: Looking at the results of the Credit Awareness Survey, what jumps out?

JLR: “The results are so hard to compare to previous years because the situation is so different. Covid has been a catalyst for change in many instances, including the understanding of personal finances, but it’s also altered the credit landscape significantly.

“Since the pandemic began savings rose £200bn, secured lending rose by 10%, unsecured lending fell 20% and delinquencies fell 20%. Naturally, it’s a different market.

“Alongside this, we did see an increase in awareness – with more people wanting to understand their finances and to pay more bills off, because they were not spending so much during lockdown. On the other hand, people were having more concerns about their job security and wanted to understand their finances because of that.

“Although the UK has a very well-educated population, there are still a lot of people who lack confidence when it comes to managing their finances, and credit is a key part of that.

“As we emerge from the pandemic, with a cost-of-living crisis confronting us, credit education has never been more important. Especially when you look at the results of our consumer poll and find 73% of respondents think 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.

“There are a lot of different things we can do to support consumers, but we need to look at how we can support the different groups within the population.

“We need to make sure we bring the people with limited or no credit histories, the ‘credit invisibles’, into the mainstream system. And we need to enhance understanding of how the credit system works more broadly, helping those that have only a simple grasp of credit to those who have no understanding. We need to look at all these groups and see how we can support them.

“In my view, there also needs to be more financial education provided starting at school age because financial management, including credit, is a fundamental part of an individual’s life. Some people seem to accept that only the extremely wealthy can reach their dreams, but access to affordable credit can help you achieve your dreams regardless of what background you come from. Credit is a fundamental part of any developed society.”

AAP: What do we mean by the term ‘financial health’?

JLR: “Financial health means different things for different people, but, for me, it starts with the ability to manage and understand money in a way that is beneficial for your life and those people around you who you care for. That includes the understanding that you may sometimes need credit to help you achieve your goals. Consumers need to know that to get access to credit, they need to be credible in the eyes of lenders and that comes from habits built up over years to form a financial reputation.

“I usually tell people that when you write your CV, you’re explaining your professional history and everything that you have done to that point has built up your capabilities and your reputation to date. When you’re looking for credit, it’s the same. We need to explain this to people through programmes like Credit Awareness Week.

“People understand the importance of this for their career, but not their credit profile. From our previous experience in countries like Brazil and in Asia, but also here in the UK, we know that some people just don’t realise that paying bills a few days late could affect their access to credit.

“As providers of credit data to the market, we have a duty to help consumers understand this. It’s the key to promoting financial health in the communities that we serve.”

AAP: What is the role of a company like Experian in this process?

JLR: “The role we have as a credit reference agency is to balance the symmetry. By that I mean that consumers have one view of their finances while lenders have another. If individuals better understand that sharing more information about their finances would help them gain access to better credit deals, everyone will benefit. That’s the trade-off.

“The problem is what we call a symmetry of formation, the information that the financial institutions, the lenders, and everybody has about you is different from what you know.

“Consumers don’t often understand that the more a financial organisation knows about you, the more likely they are able to offer you fair access to credit. Consumers think it’s a bad thing if a company knows too much about their finances, but it’s really not.

“We need to get to a situation where the consumer and the lender has equal understanding of their finances and that will enable better provision of credit and boost financial health.”

AAP: What are the biggest opportunities are for the credit and data industry?

JLR: “I think we still have a lot that we can do for those on the margins of the system, the ‘credit invisibles’, we just need more qualitative data. Open banking can help with this. The UK is a world pioneer in this space, and this gives us the opportunity to do more with data.

“We also need to use more technology that can help us understand all this data. There is still room for the industry to evolve here, delivering better outcomes for consumers through the application of new expertise.

“Today, technology is cheap and there are a lot of new ideas being tested and brought to the market by fintechs. We’re involved in an exciting ecosystem where we are seeing lots of experimentation and testing.”

AAP: How can open banking shape the future of credit?

JLR: “It’s about adoption and making consent easier. The important next step is to make sure the benefits of open banking data sharing are appreciated by the population and therefore this will increase adoption. That’s probably the most important step we can take in the short-term future.

“People are understandably worried about privacy and where their data will be shared, so we need to do a better job at explaining to people that, in the credit data industry, we take a lot of care with the information we are consented to use and only share the information for specific purposes.

“It’s been a unique period, with the pandemic leading to a massive growth in the use of digitals tools and services. It’s understandable that people are apprehensive about some of these things, and that’s the same when it comes to talking about money, which is why I like to talk about the benefits you gain when you share your financial information. And this is all part of developing financial education and building ‘credit awareness’ in society. We have an opportunity to help people understand that they have nothing to lose and a lot to gain.”