Credit, collections & insolvency news
New research from Freedom Finance, has indicated the potentially serious impact of credit declines on potential borrowers in the UK is creating application anxiety.
Nearly half of all (46%) adults said that they wouldn’t apply again if they were declined for a loan or credit card from their bank. Over a third (36%) said that this was because they were afraid of further damaging their credit score.
Only three in 10 (28%) said that they would have the confidence to apply again. There was also clear uncertainty and a lack of confidence over what actions many consumers would take next if they did suffer a decline, with a quarter (25%) of adults stating that they wouldn’t know what to do.
Application anxiety was most prevalent among younger age groups, perhaps because of a lack of experience in using the credit market and thinner credit files. Six in 10 (59%) people aged 25-34 said that they wouldn’t apply again if they suffered a loan decline, with the majority of this age group (51%) saying the fear of damaging their credit score further would put them off making another application.
The research also found that a high likelihood of approval or acceptance when first starting to shop around for loan products or credit cards was important to three in 10 (30%) adults.
The latest FCA data revealed that one in 14 adults (7%) had experienced a rejected credit application over the past 12 months.
Emma Steeley, CEO at Freedom Finance said that it was worrying that so many people felt locked out of the credit market after a loan rejection and that both providers and consumers had a responsibility to ensure continued access to credit products on fair terms.
“It is concerning that our research revealed such high numbers of people lack the confidence to borrow after a decline,” she said. “With nearly a tenth of adults in the UK experiencing a rejected loan application over the past 12 months, it is a significant proportion of the population who feel unable to access the market.
“When times are tough and budgets are squeezed, it becomes increasingly important that consumers can access the widest possible range of personal loans and credit cards from trusted providers.
“Using digital marketplaces is a great start when it comes to shopping around for the best rates. These platforms ensure consumers can narrow the dizzying array of credit products down to just those that are likely to suit their personal circumstances.”
“Open banking is transforming the way in which lenders use data to assess borrowers, opening up a wider range of products for consumers. It means that even people with very thin credit files are able to access the credit market by establishing a more accurate picture of their overall financial health.
“Moreover, by using marketplaces that optimise the use of open banking and soft searches, consumers can avoid damaging declines as they will only be offered deals where an application would be successful. This is particularly important for those with limited credit histories where a credit rejection can have a disproportionately large impact on their ability to obtain other borrowing products in the future.
“It will support people who may have had their confidence knocked after a decline by helping them see that the options that are still available, avoiding the fear of a vicious spiral of loan rejections and keeping the door to the credit market wide open.”
