Salad Money and the UK’s Credit Deserts

15 Jan 2020

Author: Daniel Evans, Salad Money

Salad Money (“Salad”) is a Social Sector Organisation (SSO) delivering affordable lending for public sector employees offering an alternative to toxic pay day and high cost credit. Salad is the world’s first open banking powered lender that only uses open banking data for credit decisioning without reference to credit scores.  Salad also offers state of the art online financial education to help such people achieve financial stability and peace of mind.

Credit is part of everyday life with almost four in five UK adults (79 per cent) holding some form of consumer credit, including credit cards, personal loans and retail finance. The systemic problem is that very few have good enough credit scores allowing access to affordable credit. 

The invisible factor in accessing credit is the all-important role of the credit score that attaches to individuals and forms the basis of credit decisioning for lenders. However, credit scores are a flawed credit decisioning model.

The numbers speak for themselves:

  • 3 million Britons forced to turn to high-cost credit with average APR of 1,333%, paying £800 million in interest in a year as a result of their poor credit score covering 5.4 m loans annually
  • 5.8 million people without credit history excluded from credit. These are people ‘invisible’ and excluded from credit entirely due to being new to the workplace, having recently moved back to the country, never having had a credit card before, or being in a relationship where their partner is responsible for managing the finances
  • Credit rating data is often 60 days out of date as lenders supply it on a monthly basis, which means people can easily end up overborrowing
  • 8.3 million are over indebted

Credit scores are instruments of financial exclusion yet for those that can access credit they are ineffectual against borrowers becoming over-indebted.

Credit Deserts

Not only does this have a devastating impact on the health and well-being of those individuals excluded from credit or forced into the hands of high cost credit. It also blights the communities they live in through high streets filled with pawnbrokers, rent to own and payday lenders. 

At least 29 local authorities in the UK can be defined as ‘credit deserts’, which means the average person in the area would struggle to access affordable credit due to low credit scores. 

Credit desert is a term coined by the think tank DEMOS in the ‘Good Credit Index’.

“A credit desert is an area of the Country where there is a high need for credit coupled with people having lower credit scores, in these places the data shows access to toxic high cost credit is easily accessible.”

Credit desert might suggest that these areas have no financial infrastructure however this is not the case, these areas have banks, building societies and credit unions. But credit scores in those communities are so consistently poor that affordable credit offerings are not available. This paucity of affordable options is accompanied by a concentration of high-cost credit, as most credit deserts feature a very high number of payday lenders, pawnbrokers and rent-to-own shops.

The 29 local authorities that qualify as credit deserts: Torfaen, Lincoln, Barnsley, Dundee City, Rochdale, Swansea, Blackburn with Darwen, Nottingham, Hyndburn, South Tyneside, Burnley, Corby, Doncaster, Sandwell, Stoke-on-Trent, Halton, Sunderland, Caerphilly, Liverpool, Wolverhampton, Hartlepool, Neath Port Talbot, Rhondda Cynon Taf, North East Lincolnshire, Knowsley, Blackpool, Merthyr Tydfil, Blaenau Gwent, and Kingston upon Hull. 

Mao of the UK credit desert areas

This represents millions excluded from affordable credit, yet these communities have NHS and public sector workers all of whom are in very stable employment.

Salad see’s these areas as unfairly under served and using our expertise in open banking technology aims to help those NHS employees living in credit deserts access the affordable credit that they need. 

About the author

Dan is the Marketing Manager at Salad Money. He finds working at the company a joy, motivated by the help Salad Money is trying to provide to NHS employees. You can reach Salad Money on Twitter, LinkedIn and Facebook.