Credit scores; it’s #confuseddotcom

This is mainly because:

1. Customers’ economic situation is rapidly evolving
2. An inability to account for coronavirus payment holidays in the customer credit record 

The first of these was recognised just prior to the pandemic. The UK government acted rapidly to reduce the economic impact of COVID on the working population. This was done directly through the furlough scheme [1] and indirectly in support given to employers [2].  

The second is only just coming to light. As reported in Credit Connect UK at least two major UK lenders are unable to properly record COVID payment holidays [3]. With 40 million accounts between them, the failures which relate to the lenders’ system of records, are impacting the accuracy of the credit data held by the 3 largest UK CRAs. Then at the end of July, the FT reported that the FCA had failed to adequately warn borrowers that taking a payment holiday, as a result of the crisis, could adversely affect their credit files [4]. Millions applied for temporary relief thinking that because of prior FCA statements their creditworthiness would be unaffected.  

These errors will compound the impact of the economic situation on customers and present, in some cases, an inaccurate picture of customer creditworthiness within CRA data.  CRA data is typically up to six weeks out of date and so these effects will take time to work their way out of the data. However, for this process to start the economic situation must first stabilize. With the furlough scheme coming to an end and the government warning business to prepare for the possibility of a ‘second wave’ [5] this could be some time coming.   

[1] ‘Sunak turns on financial firepower to help workers’ The Financial Times, 20 March 2020
[2] ‘Will bounce back loans cause SME lenders to fall flat?’ Credit Connect, 1 July 2020
[3] ‘Poor IT fails customers on COVID-19 payment holidays’ Credit Connect, 5 August 2020
[4] ‘Delay in warning about payment holiday credit risk attracts criticism’ The Financial Times, 27 July 2020
[5] ‘Johnson warns UK business to prepare for second wave’, The Financial Times, 27 July 2020