Consumers “left in the dark” on credit refusals

Nearly 90 percent of Brits feel left in the dark on credit refusals, according to a survey published today.

Consumers “left in the dark” on credit refusals

A whopping 86 percent of consumers believe they should be offered clearer explanations when lenders decline applications for products such as mortgages, loans and credit cards, according to the YouGov survey commissioned by Credit Strategy and Experian and published today to launch Credit Strategy’s Credit Awareness Week campaign.

Amid the launch of the Credit Awareness Week campaign – a consumer-facing campaign designed to increase individuals’ awareness  and understanding of credit scores and how decisions are made to lend or extend credit to consumers, the survey shows that, among consumers, confusion reigns.

The survey reveals that 78 percent of UK adults think lenders should give guidance on what they can do to improve their chances of getting credit in the future, following a refusal.

It also shows that more than half of UK consumers have never checked their credit score, even though this is now free, and that 75 percent of borrowers mistakenly believe that credit refusal has had an impact their credit score.

Many people also misunderstand the credit-decision-making process; more than a quarter of UK adults mistakenly think credit reference agencies make the decision to turn down applications for a loan and approve credit cards.

The reality is that lenders decide which customers to accept and refuse, with one or more credit reference agency simply providing information to help the decision.

In fact, industry guidelines require lenders to tell people the main reason for refusing credit, but only if they ask.

As part of the Credit Awareness Week campaign, which is also backed by the Consumer Finance Association, Experian and Credit Strategy are launching a guide for consumers that tells them what their credit score is, why it’s important, what things affect it and how to improve it.

The portal includes a new credit refusal pathfinder to help people take some simple steps after they receive a decline of an application for a mortgage, loan or other form of credit.

James Jones, head of consumer affairs at Experian, said: “It’s alarming to see so many people in the dark when it comes to credit refusal and credit scores. Some lenders do volunteer the main reason why they refused credit but this is probably not the norm. Access to affordable credit is an important issue and we really want to help people take more control so they can improve their financial future.”

The survey found 80 percent of participants thought being on a credit blacklist impacts your credit score and 15 percent thought checking their own credit report would affect their score.

Kamala Panday, publishing director of Credit Strategy, said: “Lenders could be more open about the reasons for refusing credit. In last year’s occasional paper ‘Access to Financial Services’ the FCA highlighted the opportunity for people to be given better guidance at the point of credit refusal. Instead, they often get caught in a fog of confusing information about how that decision is made – and who has made it.

“We have launched with Experian an innovative tool to help consumers navigate the daunting series of choices available to them at the point of credit decline. We will also be encouraging the industry to provide more clarity to consumers on this topic during Credit Week.”

The new credit refusal pathfinder offers clear guidance on when it can be helpful to go back to the lender either for more information or to ask for their application to be reviewed.

Russell Hamblin-Boone, chief executive of the Consumer Finance Association, said: “What is revealing is that most people under 35 do not know what their credit score is.  Understanding your credit score is important, but it is important to remember it is just one tool lenders use before issuing credit.”

Gordon Bell, chairman of credit industry forum SCOR, said: “It is good that Credit Week is raising the profile of the issue of consumer uncertainty resulting from having their credit or loan applications declined. 

“There are many reasons why a decline decision is made and it can be difficult for individuals to determine what the next steps could be.”