Despite banks approving a higher number of mortgages – some 5.4 per cent more than last year – not everyone finds it so easy to sail through the home loan process.
More than one in ten adults in the UK would likely be rejected for a mortgage if they applied – and it’s not because they are poorly paid or heavily in debt. They are the ‘credit invisibles’ because when lenders try to judge their financial history it is much like staring at a blank sheet of paper.
Every adult has a credit report which tells lenders about a person’s financial track record.
The ‘credit invisibles’ are those with little or no history of borrowing money
Few regularly check what information is stored about them and some will never have glanced at their reports.
Those with little or no history of borrowing money are considered a gamble by lenders and could find themselves denied even a simple mobile phone contract, let alone a big property loan.
But it is not just young adults or people from overseas who risk being turned down for mortgages, credit cards, loans and bank accounts.
Prudent savers, retirees and the newly divorced are also vulnerable to rejection. This is because savers who do not borrow have no record of successfully repaying debt. It is a similar case for divorcees whose ex-spouses handled all financial matters and have no bills in their name.
Retirees may simply not have borrowed for many years as they relied more on savings than debt. James Jones, of credit report provider Experian, says: ‘The size of the UK’s invisibles population shows just how many people can – sometimes surprisingly – be excluded from the mainstream credit economy.
‘If you have little or no track record of managing credit you can easily find yourself in a similar position to people with payment arrears or even those who have defaulted on borrowing altogether.’
Would-be borrowers only usually discover their invisible status when refused a deal. One couple, who wish to remain anonymous, rented a home for 12 years without missing a single payment.
Husband and wife are both employed and have two children. They were confident their impeccable payment record and a clean bill of financial health – with no debts – would stand in their favour.
Instead, they were rejected for a mortgage, had no idea why and missed out on the family home they wanted to buy. The husband says: ‘We thought we had been clever by avoiding credit – spend less, so we owe less, and then we would have a better credit score. But we were rejected for a mortgage.
‘Even worse – it took six months for us to find out why.’
Meanwhile, another divorced woman who was married for 28 years had grown accustomed to her ex-husband handling the finances. When they split, she was rejected for a mobile phone contract.
The mortgage and bills had all been in her ex-husband’s name, so she had no credit history from the years she was married.
She says: ‘It was so embarrassing to be told that, despite having always paid your bills on time, you have no credit history. I felt invisible.’
When she later applied for a loan, she could only get one at a high interest rate.
Specialist credit cards that build a credit history can help
Justin Basini, co-founder of ClearScore, which provides credit reports and scores, says: ‘There are usually two reasons why someone doesn’t have a detailed credit report. Either they don’t have any credit history or their credit history is too old. Often these people are forced to turn to services that offer extortionate borrowing rates.’
To improve a credit rating, sign up for the electoral register at gov.uk/register-to-vote.
To keep details private, opt out of the ‘open register’ – an edited version of the register that can be bought by marketing firms.
Specialist credit cards that build a credit history can also help. These include Fluid, Capital One and Aqua. Interest rates on these cards are usually high so customers should repay on time, in full each month and stay well within the borrowing limit set by the lender. It is important to never miss a payment.
Opening a bank account and putting household bills in your name can help to build a positive picture. Tenants can also add rent repayments to their Experian reports.
