How do banks benefit from “real-time” credit scores of SMEs?

By Puja Sharma

Millions of people in the UK admit they never think about their credit score, despite many saying they are expecting to borrow more money from their bank or lender to manage the cost of living crisis.

New research commissioned by CRIF – Europe’s leading provider of consumer and business credit information – surveyed thousands of people in countries across the continent including France, the Czech Republic, Italy, Germany, Slovakia, and the UK.

The findings show nearly half (46%) of UK consumers never think about their credit score, significantly higher than the European average (31% excluding the UK), and the highest of all European countries surveyed, including France (35%), Germany (40%) and Italy (27%).

This is despite the UK having one of the highest household debt levels in Europe, and one in five (19%) saying they expect to borrow more from their lender in the next 12 months. Understanding how credit scores are calculated is also poor. Less than half (48%) of people in the UK say they understand how their score is calculated, and one in five (20%) say that were their score to go down, they wouldn’t know how to improve it.

This lack of engagement and understanding is having a detrimental effect. One in ten (10%) consumers say they have been turned down for borrowing since March 2020 (the start of the pandemic lockdowns in the UK). Of this group:

Around 64% say they received no information from their lender on how to improve their situation. Half (50%) say they had to turn to more expensive forms of credit, such as payday or short-term loans – the highest in Europe. Over 52% say they were surprised to be turned down as they believed they had a good credit history.

Sara Costantini, CRIF’s Regional Director for the UK & Ireland, said, “The increasing cost of living is putting a huge strain on people’s finances. The fact that many more plan to turn to their banks for financial support, coupled with rising interest rates, mean it’s vital that people have a good grasp of their creditworthiness.

However, there is a severe lack of awareness and understanding among people in the UK of their credit score, how it works, and how to improve it. During these challenging economic times, it’s critical that consumers and businesses alike fully understand their creditworthiness.

“Financial providers need to work to engage and improve people’s understanding, utilising innovations in open banking, and enabling more accurate, lower-risk lending decisions that can help people avoid turning to more costly forms of credit.”

It’s not just UK consumers that are in this situation – small businesses are also. These consumer findings build on previous analysis by CRIF into the creditworthiness of the UK’s small business population. The SME Health Report found that banks and many clients are now seeing more companies as a higher risk, and the need for business owners to know, and communicate, their “real-time” business credit score has become essential.

Key Findings

• Nearly half of people in the UK never think about their credit score, the highest in Europe, new research from CRIF finds
• One in ten has been turned down for traditional lending since 2020, with half of those turning to higher-cost forms of credit such as payday and short-term loans
• These consumer findings build on previous analysis by CRIF into the creditworthiness of the UK’s small business population.
• Banks and many clients are now seeing more companies as a higher risk, and the need for business owners to know