Why lending should be about more than a credit score

But what stuck out for me most, were the stories we heard from civil servants. Lured by our stand (or perhaps the free cupcakes), throughout the three days we spoke with hundreds of civil servants ranging from administrators to deputy directors about their careers as well as their concerns.

As someone belonging to a generation known for bouncing from employer to employer, I was amazed by the number of career civil servants who still, after decades of work, remained excited and committed to the Civil Service. Each individual, whether from HMRC or Work and Pensions, exuded a sense of pride in their work - work that contributed to their country.

This sense of pride and commitment has stayed with me in the months since the conference. In particular, because it was often followed up by a ‘But’. The ‘but’ was not in regard to their employer, their pay, or their day-to-day responsibilities. Instead, it concerned their financial health.

Financial difficulties despite dedicated workers

Conversation after conversation, civil servants shared with us the difficulties they were having financially. For some, this meant settling for expensive bank loans, for others this meant resorting to high-cost payday loans.

Unfortunately this is the reality for many civil service members. Research from the Financial Inclusion Commission shows that 8 million working people in the UK have no savings and 2 million take out a high cost loan each year, such as a payday loan with interest rates of over 1,000%. 

Current consumer lending practices are highly regressive, in which the less one makes, the more likely they are to be charged a high interest rate. This can lead to financially vulnerable individuals becoming even more vulnerable.

The reliance on credit scores

In part, this is because many lenders rely on credit scores, and credit scores alone, to determine whether to lend to someone, and at what cost. For many lower paid civil servants this means that they are not eligible for traditional bank lending, or will have to take on high-cost debt.

For many civil servants I spoke with these financial worries seemed to live in constant tension to their commitment and passion for their work. The thing is, they shouldn’t have to. Variables beyond credit score should be taken into account in lending decisions.

For instance, the enduring commitment and tenure of civil servants should be a factor in determining their creditworthiness. This not only would help alleviate the financial worries of civil servants, but also would improve the engagement of civil servants.

Salary-deductible lending models are quickly gaining momentum throughout the UK. By taking loan repayments directly out of payroll, they help mitigate the risk of lending, and therefore the cost of borrowing. Importantly, these models take into account factors beyond credit score, such as tenure, into the lending decision. In doing so, these models recognize individuals as more than a credit score.

Emily Dillon is marketing manager at SalaryFinance.

This article was provided by SalaryFinance.