May 10, 2013 Simon Williams
As many people have learned, especially in the wake of the global recession, if they skip paying bills, the result can be devastating and long-lasting. When individuals decide not to make an allotted payment on an account or simply cannot do so because they are having trouble making ends meet, credit or utilities providers often report such missteps to credit bureaus, which are in charge of coming up with credit scores.
As such, consumer credit scores can take a big hit. However, this can also spell trouble for lenders. If people have poor rankings, then they're likely not going to be able to qualify for loans or other forms of credit.
That's not the case for every lender, as alternative financiers have the liberty of making up their own rules. Many of these businesses use different scores that actually tend to provide a more comprehensive look at individuals' creditworthiness. For instance, one method of ranking that's rising in popularity is the Payment Reporting Builds Credit (PRBC) score. Rather than only taking the input of utilities providers when someone's already missed payments, users of this strategy can take note of a person's positive history on the account. This, paired with other financial indicators, can better determine if alternative lenders should take the risk.
This might be weighing heavily on the minds of some United Kingdom-based lenders, as recent studies have shown that many British people continue to face issues when it comes to making payments on time.
Credit cards trouble some individuals
The main challenge here is credit cards. It can be easy for some people to get into a habit of charging their personal items, thinking that that is a better deal because they don't have to put up the cash upfront. But when the bill arrives, with accompanying interest, the result can be shocking and people might not be able to pay it off.
According to Bank Credit News, this is the reality a number of British consumers have recently faced. The source, citing information from MoneySupermarket.com, 18 percent of U.K. shoppers missed at least a payment on one of their various accounts in 2012, with the majority identifying them as credit card lines. The news source detailed that 3 million consumers in the U.K. skipped out on credit card bills. Comparatively, 2 percent of all Brits did not pay their rent at least once last year, while numerous others named mobile and electronic bills as the payment that was passed on.
"Those applying for a credit card need to prove they can make regular and stable payments, and any black marks against a credit profile would hinder chances of being approved," MoneySupermarket.com head of banking Kevin Mountford indicated, as quoted by Bank Credit News, a sentiment which also applies to other lines of credit. "...When it comes to applying for credit, this one mistake could lead you to being rejected as banks look closely at repayment history and how you have managed your finances, and in the current climate, can use this against you."
Alternatives to the rescue
Many alternative lenders in the U.K. are aware that blunders happen every so often. As such, owners of such businesses might want to consider using other scoring methods to deem would-be borrowers credit worthy or not, because a number of experts think that with the current financial landscape, many people won't be able to qualify for traditional loans. If scores like PRBC are put to use during the application process, not only will many British consumers find solace, but the lenders themselves will likely be able to expand their business, resulting in more revenue.