Credit reference agencies are using traditional credit scoring methods that are out of sync with modern financial life and that fail to accurately capture the creditworthiness of many people. As a result consumers are either completely financially excluded or pay a premium for credit, according to research released by trade body Responsible Finance.

Credit scoring is dominated by a handful of companies globally, all using similar data sources and scoring models. Scoring is based on an era when people had steady employment and predictable incomes. In a time of zero-hours contracts and the gig economy, they are out-of-date with modern living.

Existing credit scoring models create ‘invisibles’ and ‘un-scoreables’. In the UK, a survey of 2,000 consumers found that 57% were at risk of being turned down for credit. This included a third who were in full time jobs and a third who earned more than £50,000 per year. Many of those most affected don’t have a credit history because they live in shared accommodation and don’t use credit cards, for example.[2]

In its report, Responsible Finance calls for the adoption of inclusive credit scoring approaches, which have the potential to stimulate greater financial inclusion and fair lending.