Over a million young people in the UK are trapped in a vicious circle of credit applications and rejections, according to new research from uSwitch.
This is driving them to payday lenders or pawn shops in disproportionate numbers, with no way out of the cycle of bad debt as many don’t understand the impact of their credit report or the how applying multiple times will damage their score.
Young disproportionately hit by credit refusals
Whilst one third of Brits have been refused credit, over 57% of 18-34 year-olds have been turned down or not got the rate they wanted when applying for credit.
Of these young people, 65% have been turned down for credit multiple times and a quarter were turned down more than five times – equating to over one million young people.
Caught in a cycle of bad debt
When rejected for credit 40% of young people felt forced to turn to payday loans, this compares to just 26% of all Brits who have been refused credit.
Worryingly 36% of 18-34 year olds who were rejected for credit turned to pawn shops or cash for gold services to sell their possessions to make ends meet. This compares to 21% all of those who have been refused credit.
If they are unable to repay loans from their payday lenders, a lost generation of young debtors will face a bleak future with more black marks on their credit report.
Lack of understanding over credit reports
Despite being turned down multiple times, young people are less likely to check their credit report when rejected than any other age group.
Nearly half didn’t check their report before applying again to see if they were likely to be accepted despite each extra application leaving a mark on their credit report, making it less likely they’ll be accepted
David Mann, Head of Banking at uSwitch.com, says:
“Young people are blindly reapplying for credit again and again but don’t realise the consequences this scattergun approach has on their finances. To break the endless cycle of credit rejections, they need more information about why they’re being turned down and what they can do about it.
“Although it’s disheartening when you’re rejected for credit, it’s important not to reapply straight away but take stock of your situation and find ways to improve it.”
No need to check credit score?
With young people becoming increasingly priced out of the housing market, 49% feel there’s no need to know their credit score, as they’re unlikely to consider a mortgage.
However, respondents were unaware that their credit score can affect them in other ways; 54% were unaware that their landlords have access to their credit report, and 74% did not know that employers could take it into consideration when offering a job.
Free access to credit reports – a game changer?
The findings also reveal that the costs associated with checking credit reports are keeping young people from taking action.
A third of young people who don’t know their credit score don’t want to pay for the information but if the report was free, 93% said that they would check it.
The It’s My Report campaign calls for free access to credit reports and a fairer approach to the way credit reports are created and shared in the UK.