New research from challenger credit bureau, Credit Kudos, has revealed the strain that financial pressures can put on people’s mental health.
With many people losing their jobs or being furloughed, people need access to affordable credit to help them deal with the financial difficulties posed by the COVID-19 crisis. The research reveals a quarter (26%) have already had to borrow to cope with COVID-19, and 86% of those expect to need to borrow more in the next three months.
However, not everyone is able to access the loans they need, when they need it. One in five (20%) people have previously struggled to get credit from a mainstream lender, such a bank, and one in ten (11%) have been turned down for some form of credit in the past year. This can have significant implications not only for people’s finances, but for their mental health.
Nearly half (44%) of people turned down for credit said it led to a great deal of stress while 40% said it had a negative impact on their mental health. 31% say being turned down for credit has put their family ‘under huge pressure in the current climate’.
More than four in ten (43%) said the reason they were turned down for credit was due to a lack of information, or inaccurate information, on their credit report. Unfortunately, there is currently widespread confusion about credit reports which can make it difficult for people to know whether the information held is up to date, accurate or relevant. For example, 45% have no idea that information on their credit report can be 60 days out of date and 23% wrongly think that being on the electoral roll has no impact on your credit report.
The confusion in the traditional credit report system is not just felt by individuals. Some lenders have recently stopped lending owing to the difficulties understanding someone’s current financial situation based on traditional credit bureau data, which is making it even more difficult for people to access the credit they need.
Freddy Kelly, CEO and Co-Founder of Credit Kudos, said: “The traditional way of credit reporting is not fit for purpose and is preventing people accessing a vital lifeline of credit, which can lead to both mental and financial strain. At a time when our mental health is already under significant pressures from health concerns and the impact of social isolation, this is another stress people simply do not need.”
“Credit Kudos works differently than traditional credit bureaus, allowing individuals to use the information in their bank statements to apply for a loan. By linking securely to someone’s bank data through open banking, lenders get a far more accurate picture of someone’s financial situation and ability to repay a loan, and people don’t have to worry about the arduous process of checking and trying to correct their own credit report. More importantly, this enables lenders to provide credit to even more people, including those they may have previously turned down.”