Credit Scoring Bias

A generation is defined as ‘the term of years, roughly 30 among human beings, accepted as the average period between the birth of parents and the birth of their offspring’.

I am unlucky enough to be part of Generation Y. We are the generation who are over-qualified, under-employed, renting, in debt and most likely suffering from a mental illness. These things are all widely covered in the news, usually framed as us vs them scenario between generation Y and generation X. What we never hear about is how all of these situations are negatively affecting our credit rating due to an archaic credit scoring system.

Credit reference agencies (of which there are 3 in the UK) are commercial companies which compile information from a number of different sources, including the electoral roll, county court judgements and financial institutions. These reports track what products of lending you have, repayment history on them, amount of credit you have etc. Lenders use this information to judge if you are low risk enough to lend too and also effect the APR you are approved for. Lenders have different lending policies and scoring systems (out-with of your credit report), and so applications to them may be assessed differently. This means that one lender may accept your application but another may not.

Now, when you look closely at the criteria that is collected (outside of lending history), it becomes apparent that this system was made for a different time.  Owning a home generates more points, as does having a house telephone number and staying at an address for a long time. Within each bank they have their own criteria which can put a higher value (i.e. points) to being married, being with an employer for a long time and being an existing customer with that bank or financial institution.

The financial products themselves can also impact credit score. Having an account for less than 33 months can negatively affect your credit score and this can include bank accounts, credit cards, loans, finance deals and mobile phone contracts!  This means that every 2 years when you change your phone contract for a better deal or take advantage of a 0% balance transfer option, you are negatively impacting your credit score. Yet experts and society encourages us to look for the best deal without informing us that we could be doing ourselves more damage than good in the long run.

These are not characteristics of Gen Y. We are the generation of renters, therefore we may move around a lot, employment can be unstable and short term, debt levels are high and marriage for most is unaffordable! We currently have a credit system that puts a typical individual from gen Y at a disadvantage. There is no sign that these patterns of behaviour are going to change soon, so the credit scoring system needs to be revised to continue to keep it ‘fair’.

Yes, I understand why lenders find these characteristics desirable as they are considered low risk customers, however, when the economy is dictating that peoples lifestyles change, surely credit scoring systems and lenders need to realise that low risk doesn’t have to equate to the stereotypical gen X portfolio. Previous lending behaviour should be the priority and indicator of future behaviour rather than the lifestyle someone leads.

Generation wh(Y) bother?

 

 

 

This week The Guardian newspaper is doing an ongoing coverage of ‘Generation Y’ and its’ problems. Those born between 1980 and 2000 are now facing their own unique problems not faced by the generation before.  Careers, technology, relationships, culture and living standards are all issues faced by every generation but are different for each and this generation is no different.

Generation Y is characterised by high levels of education, high unemployment or under-employment, increased use of technology in everyday life and often living with parents or paying high private rents. This generation (my generation; so I completely relate) were brought up to believe that education was the key. It was the key to a career you wanted, to money and to happiness. Yet this promise has been broken. I know many people who, like me, worked hard at school, then university to graduate only to discover that there are no jobs available that pay. There are internships or apprenticeships but any job that pays requires experience. Experience is a difficult thing to acquire when no one will give you a chance.

Networking suddenly matters again as does your family’s financial status. Who you know means you’re more likely to get the job in a large company and whether or not your family can finically support effects whether or not you can afford to take an unpaid internship. Careers are for the wealthy again, everyone takes any old job. We are a generation of Customer Service Representatives.

Home ownership is a distant dream for many of us also. Mortgages are difficult to get, deposits are hard to save for particularly if you’re currently paying high private rent. Landlords have seized an opportunity, realising that there’s a whole generation wishing to move out of their family homes but unable to buy so they charge high rents and this doesn’t just apply to London. I live in a town outside Glasgow and rents are typically £500 a month for a one bedroom flat. So we stay at home or we flat share, neither ideal.  I recently moved back to my family home due to money and was only there for 8 months. Over 6 years of living in my own place made it difficult to be at home and removes the feeling of independence and adulthood that having your own space and responsibilities it gives you.

Relationships have changed. We’re supposedly the generation of casual encounters yet many people I know are in long-term relationships or are getting married. In the past year I know of 4 weddings and three couples engaged. We crave connections, stability, support and someone to share our lives with. We are a generation to marry young but unable to start families due to financial constraints. Instead we struggle with mental illness, debt and a feeling of being stuck.

Not all is doom and gloom though. We are a generation of self-starters and we utilise technology in new wonderful ways. Our busy lives mean technology features in everything we do keeping our connections with each other strong and enabling dating to be taken to a new frontier.

However, these good points do not make up for the broken promises. As a generation we need to be involved in politics more or take action to show our displeasure. We should be angry yet the demonstrations of this anger have dissipated. The student protests have stopped, the occupy movement has shrunk and we plod along complaining but taking no action. We need to take control back. The government rules because we allow it to. Let’s not let them rule us this way; let’s make a difference and cause change. Let that be our generations’ legacy.