Beyond data credit scoring: Individual Financial Reputation
The Rise of ‘bad credit’ mortgages: complicated history leads to low score
Buying a house seems an impossibility for millions of people in the UK, studies have shown. Increasing property prices and untrustworthy credit score systems are positioning Britons further away from the goal of owning a property. The solution? A system that allows customers to explain their side of their credit histories, laying out the facts and circumstances behind the numbers.
In Britain, many worry about getting a mortgage, especially the millennial generation, which has witnessed house prices skyrocketing while wages have only stagnated. Given these conditions, hopeful buyers are finding themselves lacking in finance options.
Indeed, according to Moneyfacts, the number of bad credit mortgages in the UK has risen by 118 in the six months ending in September. Bad credit mortgages are schemes designed to help those with poor credit scores to buy property, currently representing 17% of the mortgage market. Those with very poor credit history will need a deposit of 35% to enter the programme.
These schemes, however, come with higher rates, putting the lender at increased risk. In September, Moneyfacts reported that the bad credit mortgage rate is currently at 4.52%, whereas the average rate of a two-year fixed rate mortgage is at 2.54%.
It is also worth bearing in mind that in the gig economy, income is rarely a fixed entity. Many workers are freelancers, or working on ‘zero-hour’ contracts. Research from Online Mortgage Advisor revealed that a third of respondents believe that having a zero-hour contract could be a barrier to securing a mortgage.
The current mood among hopeful house buyers is indeed pessimistic: nearly 13 million Britons don’t believe they would be able to get a mortgage.
The poll from Comparethemarket found that 45% of mortgage seekers who had their application denied said this had a negative impact on their credit score.
“You are right to be worried that your credit card debt could see you turned down for a mortgage,” said Virginia Walls, mortgage expert at the Guardian.
“You are also right that when you make a full mortgage application, you will face questions about your credit cards and may even have to show recent statements. You will also be asked detailed questions about other regular expenditure to help the lender decide whether you will be able to afford a mortgage on top of all your other financial commitments.”
Credit history is more than a number, it is about individual financial reputation and credibility.
Credit history is built on a variety of aspects, such as payment history, outstanding balances, length of credit history, and types of credit accounts. A lower credit score means that one is less able to secure a mortgage or a loan, as well as having to pay higher interest rates when credit is granted.
Individual Financial profiles are put together from black-and-white data, stark facts, with no subjective assessment. If an individual is in debt, with considerable outgoings and no family support, many forms of credit — including mortgages — may prove inaccessible. The same individual might also be facing divorce or serious illness, with all their associated costs. Savings may have been poured into education.
However, none of this background information is currently taken into account as mitigating circumstances by credit scorers. Although undeniably relevant to an individual’s financial situation, such circumstances do not ‘count’ in the final assessmen.
The root of the problem is in the system that builds an individual’s credit history. Personal finance and savings are fluid information, after all, people manage their wealth according to their priorities at any given time, so applying a figure to certify an individual’s credibility seems a shallow solution. It does not reflect wealth, which may have been accumulated in other forms than cash, or unforeseen circumstances over which one has no control.
Such a system often proves to be unfair for the average person and can do more harm than good when it comes to looking for financial support. We need a tool that allows this ‘human’ information to be implemented, a mechanism that will give individuals the opportunity to provide information beyond the figures on their credit histories. It is therefore right that consumers should be able to provide a personal take on the way they have managed their own finances, in order to be assessed more fairly.
Is it possible to have a more inclusive individual credit scoring with more accurate data to include individual’s opinion and truth?
Perceiving the need for a more holistic approach to credit ratings today, UK technology company Right of Reply is introducing its ‘Reply on Credit Check’ (RoCC) platform, which works alongside credit agencies to implement a layer of individual statement on credit history, and response to negative content.
“Right of Reply has developed a unique platform, ROCC, that offers specific services and tools to credit agencies and individuals aiming for a fairer credit scoring data and information. It allows a registered individual to amend their own credit report and credit rating with narrative information to correct errors or explain events in that credit report, and to contextualise or justify any debt position expressed in the credit report.
The credit agency will benefit from this corrected information as it will reduce their legal responsibilities, and because they will offer their client a more precise report that takes into account the point of view of the debtor.
We believe that individuals should have the opportunity to ‘tell their truth’ in response to any negative/inaccurate online content and any inaccurate Credit Report or Financial History that could be damaging for their reputation and personal lives.” commented Stefania Barbaglio, Right of Reply PR and UK Development.
