Risking exclusion from mainstream financial services because you have a limited financial track record might seem like a Catch-22 situation, but it’s a reality that millions are facing in the UK.

In fact, 5 million UK adults now fall into the category of ‘Credit Invisibles’ – those who are virtually invisible to the financial system because there is insufficient information about their financial track record. While the average person’s credit report, used by lenders to analyse their creditworthiness, may contain a current account, utility accounts and perhaps a credit card or mortgage, credit invisibles have little or no financial footprint.

This ultimately means these people have significant hurdles to face when trying to access mainstream UK financial services, as lenders consider them to be riskier, and so can only offer them financial products at higher interest rates, if at all. As well as financial services, credit invisibles can also struggle to access other crucial public services, which often rely on credit-report driven services.

What is credit invisibility?

It’s easier than you might imagine to be classed as credit invisible. It’s not just those without a bank account – people who pay for their energy with a top-up meter or aren’t named on any of their household bills will have a limited financial track record. 

And, while the assumption might be that income is the driving factor behind credit invisibility, age is also a vital factor. Older, high-income people may also be credit invisible because they have either paid off their mortgage, have limited use for credit, or have not relied on credit previously. Similarly, those who have just turned 18 and are new to credit are likely to be classed as invisibles.

It’s an issue that impacts the whole of the UK, making it a national problem. Sheffield Central has been named the constituency most affected by the issue, with credit invisibles making up 17.7% of its population, but even in Maldon, the constituency with the lowest proportion of credit invisibles, these people still make up 6.5% of the population. 

There are differentiators within the term credit invisible, helping the industry tailor our approach to tackling the issue. For example, those who aren’t on bureau records at all are described as having ‘no file’, and those who have some data available, yet not enough relevant information for organisations to make informed decisions about them, are classed as having a ‘thin file.’

Tackling credit invisibility

We first conducted analysis on this subject in November 2018, when the number of credit invisibles in the UK totalled 5.8 million. Since then, we’ve worked hard to tackle the issue and breakdown the barriers preventing these people from accessing mainstream financial services, having managed to reduce the number of ‘credit invisibles’ by over 750,000.

While this shows substantial progress, the reality is that just over 5 million (5,049,129) people remain credit invisible, and we know there is much more that needs to be done. Amidst rising inflation and the cost-of-living crisis, which follow two years of pandemic related uncertainty, we believe it is more important than ever for as many people as possible to have a solid understanding of their financial situation and to be able to access financial services when they need to.

To achieve this, it is the responsibility of our industry to work together with lenders and others to make the invisible, visible.

A large part of the solution lies in industry-led financial education. This a major area of attention for Experian, and so we are working to increase understanding of credit scores to encourage people to engage with their credit history and wider financial situation.  For example, we recently launched Credit Awareness Week which included a series of activities to help empower people to improve their financial futures.

But education is not enough on its own. Industry change is needed to tackle credit invisibility with the use of new, relevant data sources which can help build out thin credit files. This isn’t something we can do alone – we need organisations to consider what new data they might be able to contribute to Experian and what they can do with the information they already gather, as well as how to improve the quality of their current data.

Over the past year, we have successfully worked with the industry to introduce new data sources to add financial information about credit invisibles to the bureau.

Open banking, which has the potential to facilitate authorised data sharing between financial services providers, is another tool that has been crucial in helping lenders to make more informed decisions about people. For example, Experian Boost, which is powered by open banking, has helped people to potentially tip the balance between being marginally refused and accepted for credit.

Looking forward

It’s encouraging to hear that the government are looking to invest in the rollout of open banking, as they confirm a funding injection in the development of ‘smart-data’ across financial services. The acceleration of smart data sharing is a key development in the technology’s evolution, and one that could be hugely beneficial to the credit invisibles population.

It is only by working together that we will be able to achieve our goal of increasing the accessibility of mainstream financial services. We all have a part to play in ensuring as many people as possible have a financial track record. We must make the invisible, visible.