Moving From Declined Credit to Financial Well-being

31 Oct 2016 By Dr Freda Owusu

Dr Freda Owusu is a Founder and Director of Insight Report Ltd (IRL). IRL is a new holistic credit reference service for people without a credit history, which resulted from Freda’s personal experience. As an Information Scientist Freda realised this was an information problem rather than a pure risk issue. IRL uses a credit scoring system that uses alternative data, which is centered on the consumer as a person, rather than on their transactions alone.

Freda worked for ten years as a Loan Fund Manager, arranging loans for people who could not borrow from banks. She is a Fellow of the Institute of Financial Services. With a passion for practical social innovation solutions, she is also a co-founder of iHealth-Direct, a telemedicine service for health inclusion. A mother of four, Freda has a PhD in Social Policy from the Open University.

The impact of being declined credit can be horrendous on a personal, financial and economic level. Who does this affect, and what can be done about it? It is estimated that 9 million people in the UK pay higher cost credit outside of the mainstream financial services; globally this rises to 2.5 billion people. What is not known is the proportion of these 9 million people who are declined mainstream credit due to ‘thin’ or no information held about them in the traditional credit reference system.

On a personal level, and speaking from personal experience, being declined credit is embarrassing, stressful and worrying. Depending on where it occurs – on a shop floor with a queue behind you, or by phone when others can hear you, it is an unpleasant experience that is not easily forgotten. My experience was many years ago, but I have never forgotten how it felt. The stress and worry involved in finding out and dealing with the reason for being declined (mine was wrong information belonging to someone else) can affect a person’s health and well-being. During that period, the most called number on my phone bill turned out to be my GP’s! As a young professional working in a bank in the City, that was a big surprise to me. Multiply that by nine million people, and that is an awful amount of stress for the NHS to deal with. It does not surprise me that research is increasingly linking financial stress to mental health. This aspect of the credit system should be considered in policy-making, from the Bank of England with its economic models and setting monetary policies, to the Treasury when determining the NHS budget.

Financially, being declined mainstream credit has at least three impacts. The first is that you lose that opportunity to make the transaction you had hoped for, and all the benefits associated with it – mine was only buying my first TV set, but for others it can be more serious: cooker, fridge, boiler, and other essential items. Secondly, although I decided not to buy the TV at that point, it is not always possible to wait. Where the item is essential, people have to go for high cost credit in order to buy what they need. This market is estimated at £27 billion per annum, so (a lot of) money is still being spent by people who have been declined mainstream credit – just saying. Thirdly, it can take a long time to build up the required history in order to be able to obtain credit at mainstream rates. This keeps people ‘financially frozen’ at that level for all that time, which is a complete waste, and economically inefficient. One expatriate corporate lawyer (earning in excess of £70,000 per annum) told me she had to use a pay-as-you-go mobile phone for two years before being able to obtain one on contract. Considering that such earners are the types of people traditionally desired by banks, by-passing some of them means that the system is missing key segments, (such as recent graduates and new arrivals, young professionals, and people who have never borrowed) even on its own selective terms.

The pricing of credit risk itself needs to be unpacked and questioned. For example, for those on low incomes, why charge higher for people who are perceived to be unable or unlikely to repay credit? Surely, high charges are likely to result in a self-fulfilling prophecy of delinquency, keeping people at that level for a longer time than is necessary, or helpful to the economy, if stress and ill-health is the ultimate result. Is it not more sensible to charge a lower rate to those deemed to be at high risk of being unable or unlikely to repay credit? This is in line with traditional principles of sound lending, which is meant to be related to viability rather than apparent ‘paper’ security. What are governments and global policy makers doing to ensure that those who are unable, pay less and are not put under stress?

We think it is actually a lack of information that is creating the barrier to accessing affordable credit, rather than the problem being a risk issue. That’s why we would like to find out more, and are currently gathering evidence from people who are unable to access credit and other financial services. We will use this evidence to help develop a new credit reference service that puts people’s needs at its core, whilst enabling service providers to make informed decisions in a fair and meaningful manner. Financial inclusion is not one-size fits all, it has a variety of facets that need to be addressed in order to be able to offer appropriate and relevant solutions to all.

If you know anyone who has been affected, please encourage them to fill in this survey.

Find out more at, or you can find Freda on Twitter.