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5.8m Britons excluded from mainstream finance

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Almost 6m people in the UK are “invisible” to the financial system, causing them to be excluded from mainstream financial products and services, a new report has found.

Analysis of user data by Experian, a credit reference agency, revealed that 5.8m people in the UK have little or no financial information linked to them. These so-called “invisibles” can find themselves barred from the services that most people take for granted, or paying higher costs to access them.

Experian said it was not just those on the poorest incomes who were affected. “These people come from a variety of backgrounds — including families on average incomes, middle-aged adults with low incomes and pre-retirement households,” said James Jones, head of consumer affairs at Experian for the UK.

“Young people in their twenties renting affordable accommodation are also more likely to be financially invisible, as well as members of the older generation who may have paid off their mortgage and have a limited need to borrow.”

The figures are released as inflation and slowing activity in the service sector weigh on household income growth. Although unemployment has fallen, wage growth has been subdued. More than a million people in the group live in households in the “squeezed middle”, where total incomes are forecast to contract over the next few years, making them particularly vulnerable to higher borrowing costs at a time when they may require credit.

“When people apply for finance, lenders review your credit report from one or more credit reference agency to help them decide whether to lend,” said Mr Jones. “While many people’s reports contain a wealth of relevant information on which to base this decision, almost 6m people are invisible or virtually invisible and this can cause them problems.

“The obvious impact of being financially invisible is a low credit score and limited borrowing options, certainly at competitive interest rates. Unfortunately, for millions of people in the UK, a lack of information might hamper their access to appropriate mainstream financial services, leading to a scenario where people pay more for goods and services and have much less choice.”

Jack Monroe, British food writer and author of a blog, “A Girl Called Jack”, is one such invisible. She was repeatedly turned down for an overdraft and often struggled to make ends meet. A long-awaited book deal resulted in her housing benefit being stopped and she came close to being evicted, forcing her and her son to move to cheaper accommodation. She described life as having changed beyond recognition, but said they are still affected by their experience of poverty.

“If I hadn’t had a thin credit file my whole story may have been different,” said Ms Monroe. “If that first overdraft had been granted, things wouldn’t have spiralled. All I ever needed was a little bit more than what we had, but no one was willing to lend me as little as £50. I initially thought it was because I was on benefits, but later found out it was due to a lack of credit data.”

Invisibles are by no means confined to the UK. In the US, for instance, approximately 64m consumers have limited or no traditional credit history. However, Experian said their relatively large numbers were explained by structural differences in the US economy, where many citizens live in rural areas with limited need to access mainstream finance.

Options for UK consumers wishing to make themselves more visible to the financial system include getting on the electoral roll, opening a bank current account or taking out a monthly mobile phone contract. They can also arrange to have regular household bills put in their name, such as energy, water and broadband.

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