Young people stuck in ‘cycle of credit rejection’

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With interest rates at historic lows, consumers are surrounded by special-rate credit deals that could save thousands on interest payments.

But despite the promotion of cheap loans, credit cards and mortgages, one in three Brits has been refused credit or turned down for the rate they wanted.

Research from uswitch found the picture is much worse for some age groups than for others. Almost six in ten (57 per cent) of 18 to 34 year olds have been rejected for credit, or only offered products at higher rates.

Of these young people, 65 per cent have been turned down for credit multiple times.

A quarter of 18 to 34 year olds have been turned down five times or more, amounting to more than one million people.

In addition to racking up damage on their credit report, 40 per cent of young people who have been refused credit have turned to pay day lenders or pawn shops to access funds.

David Mann, head of money at uswitch, said young people are stuck in a “cycle of credit rejections” as a result of “blindly applying for credit again and again”.

The comparison website has launched the It’s My Report campaign, which has the backing of 15,000 consumers.

It calls for annual free access to full credit reports and credit scores for everyone, as well as changes to the law to make it mandatory for credit providers to tell people why they’ve been refused credit.

Currently, credit reference agencies are required to provide a statutory report on request but can charge £2 for each report. The statutory report does not include a person’s credit score.

There are three main credit reference agencies: Experian, Equifax and Callcredit.

Exeprian and Equifax both offer monthly subscription services that allow users to check their credit report and score instantly online. Both services offer 30-day free trials, but customers must give their card details and will be charged if they fail to cancel before the end of the trial.

Noddle, from Callcredit, offers free access to credit reports.

However, not every company provides credit details to all credit referencing agencies. As such, without checking with all agencies, adverse impacts from some providers could be missed.

More than a quarter of people (27 per cent) said they would not pay to access their credit reports. However, 83 per cent said they would check this information if it were free.

For 18 to 34 years old, a third said they would not pay for the details, but 93 per cent would access a free report service.

Mr Mann said anyone rejected for credit should “take stock” of the situation and find ways to improve it.

He said: “A poor credit rating could be the final nail in the coffin for young people who are already facing tough decisions - struggling with rising living costs and the challenge of getting onto the housing ladder.”

Ray Boulger, senior technical manager at mortgage adviser John Charcol, told The Yorkshire Post that young people turned down for credit fall into two camps: those who can turn to family for help with funds and those who cannot. As such, being turned down for a mortgage can “extenuate the social divide”.

Mr Boulger said the firm would always recommend people to check their credit report and discuss any concerns with their mortgage adviser. “There may be some things that people don’t see as a problem, which could cause an issue,” he said.

“Bill disputes with mobile phone companies where the company has recorded a missed payment or default are quite common,” he said.

Registering on the Electoral Roll is also important.

However, having multiple addresses in recent years lowers credit scores, something that could be unavoidable for some renters.

Mr Boulger suggested students should remain registered at their parents’ home, which will build up a steady address record.

“People often don’t realise the impact of not being registered,” he added.