The Good Credit Index

• Context
• The study
• Key findings
• Points to consider

Context

Almost four-in-five adults in the UK hold some form of consumer credit, including credit cards, personal loans and retail finance. However, not everyone is able to access credit under the same conditions. These disparities can result in very different experiences of accessing credit, dependent on where a consumer lives. In some areas of the country, affordable credit is relatively easy to access, while in other areas it’s almost impossible.

The study

The 2019 Good Credit Index from Demos maps access to ‘good’ credit across the United Kingdom. The Index is divided into three strands:

1. Credit need (including variables such as income, the number of people struggling to keep up with bills and the volume of credit searches);
2. Credit scores (including rates of County Court Judgements as well as average credit scores);
3. The credit environment (number of payday lenders and pawnbrokers, as well as banks and credit unions in the area).

The Index was created by calculating these three sub-indices, and them weighting them equally to give a final Index score. The Index is created at the Local Authority level, which was the most granular geographical unit that was feasible. The Index was formed from a variety of sources, including:

• Publicly available national statistics;
• Data from financial inclusion charities;
• Geospatial data from Open Street Map;
• Credit provider websites;
• Private data from Equifax (credit reference agency), the Association of British Credit Unions, the Registry Trust and Link (cash machine network).

Data were from the period 2017-19. This report was funded by a grant from NewDay.

Key findings

• At least 29 local authorities in the UK are described as ‘credit deserts’, meaning the average person in the area would struggle to access affordable credit. Credit deserts are defined in the report as areas where there are poor credit scores that overlap with high credit need.
• These credit deserts were identified as: 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.
• The Index shows that credit deserts tend to have a higher density of payday lenders, pawnbrokers and ‘rent-to-own’ shops.
• ‘Post-industrial’ towns show particularly high levels of credit need, falling towards the bottom of the Index and including the South Wales Valleys and Merseyside.
• Affluent areas in the South East (including several London boroughs) see relatively low levels of need.
• The local authorities exhibiting the lowest average credit scores include Hull, Merthyr Tydfil, Blackpool, Neath and Hartlepool.
• The local authorities exhibiting the highest average credit scores include Chiltern, Wokingham, St Albans, Richmond and Rushcliffe.
• The regional distribution of the credit scores shows a clear division between North and South, with Wales and the North East having the lowest average scores, with scores in the South East and South West (excluding Cornwall) among the highest.
• Overall, the highest levels of unsecured borrowing tend to be in more affluent parts of the country where people have access to cheaper and more plentiful credit.
• The report highlights that the credit environment has changed considerably recently, with the largest payday loan companies having shut hundreds of shops over the past five years.
• However, payday lenders, pawnbrokers and rent-to-own shops are still clustered in areas with high credit need, with almost five times as many of these businesses as in the areas of lowest need.
• The report ends by giving a series of recommendations based on these findings, with Demos calling for improved place-based strategies to build better access to affordable credit in ‘credit deserts’.

Points to consider

Methodological strengths and limitations:

• The intention is to repeat the Index annually, which will provide important longitudinal insights into which local authorities are improving regarding access to ‘good credit’, and which authorities are worsening.
• The authors acknowledge that a lack of suitable data has meant that some information could not be included in the Index (such as levels of fraud and the use of illegal moneylenders).
• A more in-depth methodology would be useful in order to fully appraise the construction of the Index.

Relevance:

• This paper is likely to be of interest to:
  • Local authorities judged to be ‘credit deserts’;
  • Providers of both high-cost and affordable credit;
  • Organisations that work with consumers who use high-cost credit (social landlords, local authorities, charities, etc);
  • Innovators in the area of social finance;
  • Relevant Government departments and the Financial Conduct Authority.

Generalisability/transferability:

• This report provides a snapshot of credit access across the UK. However due to the age of some of the data, and the fast-moving regulatory environment, the findings and recommendations in this report may quickly become dated.