Category: Credit Criteria

How to Address the Question of Financial Security for Gig Economy Workers?

The concept of work today is changing. One key trend making waves is the concept of freelance or contract-based work, also known as the gig economy. A departure from the full-time employment, a gig is a temporary work engagement where the worker is paid only for that specific job.

According to the McKinsey Global Institute [1], there are 5 million people currently working in the gig economy in the UK, which is around 15.6% of the total full- and part-time workforce in the UK (32 million). The flexibility that this trend offers the individuals is what makes it so attractive, especially for those who do not want to, or for some reason cannot, work full time; while the businesses find the gig-based system to be more cost-effective and efficient.

Many of the current work profiles can easily be transformed into gig economy contracts. Some of them are obvious, such as couriers, delivery staff, drivers and manual labour; while others may not be as obvious, such as part-time teachers and healthcare providers. According to the Office of National Statistics[2], most of UK’s gig workers are in London. Around 27% of the capital’s workforce is employed on a gig basis (17% are self-employed and just 13% are employees).

While it is a given that people who are working as independent contractors benefit from the ability to quote their price on the project of their choice, there are some obvious pitfalls as well. One of the biggest one is, of course, the lack of job security and continuity. Also, as gig workers are not recognized as employees, they are not eligible for workers’ rights and benefits such as sick leave, holiday pay, maternity leave, etc. In fact, they are not even assured a minimum wage.

This is a disturbing development, taking into the account the fact that the UK is currently facing a consumer debt crisis. The average UK family now owes £15,385 in unsecured debt, including credit cards, loans and overdrafts. According to the Trades Union Congress, the total amount owed rose to £428 billion in the Q3 2018. That means each household owed £886 more than a year earlier. [3]

Another disturbing sub-trend developing in relation to the gig economy is regulatory in nature. As gig workers are not recognized as employees, they are, therefore, cut off from the ‘benefits’ that go hand-in-hand with full-time employment. As a result, many gig companies are facing legal issues. Addison Lee, a car and courier business, has come under a lot of scrutiny in the UK for claiming that their drivers are not employees but self-employed and are not entitled for employee benefits. Deliveroo, another gig company, faced riders’ strikes after the company announced plans to replace their hourly rate with a payment per delivery[4].

Such examples clearly point to the fact that financial security is top of mind for individuals.
Recognising this need, companies such as Addison Lee and Deliveroo have now started to evaluate alternatives that allow them to improve engagement with their workers as well as benefits that go with the gig they signed on for. For example, Deliveroo is set to equip its 35,000 riders with free accident insurance worth £10 million. The flip side to this move is that the company risks labeling its self-employed workers as staff. However, if regulations allowed for benefits to gig workers, then many companies would certainly be exploring additional options. According to Deliveroo’s CEO and founder Will Shu, “We would like to go further, but are currently constrained by the law.”

One thought that needs further deliberation is that for a gig worker access to mainstream financial products is limited considerably, since old credit models don’t treat a gig worker in the same light as a full-time employee. Even if they have a good history of earning and stable income, their options get reduced and costs are driven up if they have to access funds in need. Additionally, the variability in income makes it difficult to stick to regular savings as income may be flexible but expenses are not.

In such an ecosystem, it is interesting to note that the number of gig workers in the UK economy are only set to grow. As per numbers shared by RSA Insurance [5], 18% of the workers in the UK would be open to gig work – that is roughly 7.9 million people prepared to make this leap. With the number of people moving from fixed income to variable income career options, there is a pressing need for a solution to address their financial needs and at the same time empower them to get into the habit of saving for a rainy day.

The FairQuid Wellness Platform may just have the answers. Having partnered with Credit Unions, FairQuid offers people an alternative access for emergency funds as well as a flexible way to save regularly – using the work history and performance as current and forward-looking credit risk indicators, rather than conventional financial parameters. In the context of the gig economy, FairQuid would tie up with gig companies to offer their self-employed contractors this innovative financial solution. They would receive financial and educational tools to take better finance-related decisions with regards to initiating savings and have ethical access to funds, if needed.

On Demand platforms will benefit by not only generating immense goodwill among the contract workers, but also proactively preventing financial security-based mental health issues and boosting engagement levels. They will also be benefitted by increasing stickiness of their platforms as they would have converted individual’s platform data into a credit currency for them.

[1] https://www.thesun.co.uk/money/3985964/gig-economy-pimlico-plumbers-uber-amazon/
[2] https://www.premierline.co.uk/knowledge-centre/the-gig-economy.html
[3] https://www.express.co.uk/news/uk/1068877/debt-crisis-uk-families-credit-cards-overdrafts
[4] https://www.thesun.co.uk/money/3985964/gig-economy-pimlico-plumbers-uber-amazon/
[5] http://www.smeweb.com/2018/05/31/gig-economy-changing-uk-labour-market/

Workforce Financial Health – Impact Analysis: The Story Behind the Numbers

FairQuid’s Financial Wellbeing Scheme gives employees the chance to save and provides them with access to ethical credit through a current and future view of their creditworthiness instead of a backward looking score view.

Savings contributions and loan repayments are taken directly from wages, ensuring employees can relieve financial stress without going through a cycle of decision making every month. Here are some recent statistics from employers we are working with.

Employee uptake: 21%

Benefits disconnect is frustrating for all. All Employers provide benefits with the genuine objective of ensuring it is a good fit for what employees need and want. The uptake of employees joining the Financial Wellbeing Scheme grew steadily throughout 2017, reaching 21% in December. Uptake jumped by 10% in the two-month period from October to December. This was driven by the holiday season with employees looking to improve finances over Christmas and into the new year.

Employee Benefit Loans are used to address a wide variety of needs. The most popular reason given by applicants was to consolidate credit cards, overdrafts and other debts.

As the Financial Wellbeing Scheme grows and employee saving increases, it is hoped that employees will be able to gain greater control over debt. Repayments made through payroll means there is no decision every month on how much of the balance to repay and how to carry forward. It also means that the money in the bank is not fighting with expenses ensuring the new year resolution to save is something one can stick to.

Unlike other employee benefit schemes – which cost employers money (FairQuid doesn’t cost for employers) – uptake is higher than Cycle to Work Scheme and gym memberships — both of which average uptake of 5% or less.

Improved savings to Income ratio: 39%

The scheme aims to help employees stay debt free, save regularly as a healthy habit and reduce reliance on high-interest lenders. In Q4 2017, average savings per net income ratio was two-times greater than Q2-Q3 2017. November recorded a high of 43%.

These results were helped by version two of our nudge initiative, based around the benefits of saving through payroll. The increase in savings shows how education coupled with actionable tools around saving has a real impact.

For the employees currently in the scheme, unexpected costs can be met without the need for expensive borrowing, reducing the endless cycle of debt. Based on multiple case studies after the introduction of the scheme, data shows that it continues to prove popular with both employers and employees.

Approval rates: 85-97%

Employee Benefit Loans give employees access to additional funds. At 85-97% approval rates for these loans, a high number of employees were able to access ethical credit without the need to approach high-street lenders or payday loan providers. The uptake and demand is well spread out in terms of Length of service/tenure at the employers.

What’s more, 15-20% of applicants had an impaired credit file. Without the Employee Benefit Loan and its use of length of service and performance to assess risk, the only other means of credit would have been through credit score-based pricing, resulting in extortionate interest rates, often in excess of 1,000%.

FairQuid’s, partner Credit Unions, base their decisions on a length-of-service model which ensures access to ethical credit isn’t impaired and a high number of employees can receive the funds they need.

Find out more

The Financial Wellbeing Scheme is helping employers build a financially sound workforce, ensuring staff are responsible with savings and budgeting. This, in turn, leads to happier employees, free of the stress and burden of debt.

To find out more about the scheme, visit: https://fairquid.co.uk/why-join-us/

Spotted: Shocking increases in CCJ

County court judgements (CCJs) are at a record high, according to consumer debt figures for the first few months (Q1) of 2017.

CCJs are registered in England, Wales and Northern Ireland when someone can’t pay a debt they owe. It is a long road from taking out credit to getting a CCJ; lenders – usually banks, credit cards, store card companies – need to go through a collections route first. Only when the debt is still outstanding can they apply for a CCJ, which makes it harder for customers to get credit or a mortgage in the future.

Data from The Registry Trust – which records judgements on behalf of the Ministry of Justice – shows that 912,389 CCJs were registered in 2016. In contrast, only 734,205 were registered in 2015 – a shocking 24% increase in one year. The situation consumers are facing is getting worse.

In Q1 2017, there were 298,901 debt judgements, a 35% increase on the same period in 2016. That is nearly one-third of the 2016 total and the highest rise in CCJs over a three month period in over a decade. The average value of CCJs is decreasing, down to £1,495 per person, from £3,662 in 2008, a sign that lenders are getting more aggressive at chasing down outstanding debts.

Worrying Patterns

The total value of CCJ debt was £1.7 billion in 2016, with another £462.5 million registered in Q1 2017. Anyone watching the economy should recognise this as a worrying sign.

Registry Trust sees this as an aggressive move by lenders to attempt to collect arrears sooner rather than later. CEO of Creditfix, Pearse Flynn said that “Any rise in the number of County Court Judgements (CCJ) being registered against consumers should be cause for concern – but one as large as 35 per cent in the space of a year, and nearly 50 per cent in two years, could point towards a more aggressive shift in the way that creditors are chasing outstanding debt.”

For the last four years, CCJs have been on the rise. As a pattern, this shows us that lenders are lending more, but not everyone they consider creditworthy can truly afford the extra credit – or when their circumstances change, and they get into difficulty, they are eager to slap them with a CCJ. In turn, consumers tagged with bad credit get charged higher interest rates or get stuck in a cycle of repaying old debt for years, even decades.

The system is stacked against those who would benefit from extra financial health. No one should be penalised for mistakes or choices from years ago when current salaries make debt consolidation and a little extra help easily affordable.

A Fairer System?

Banks, credit cards, payday lenders and consumer finance partners aren’t the only ones that can lend money in the UK. Not-for-profit, member run Credit Unions can make responsible lending decisions, with previous blots on their credit file, but good recent financial health. When a loan is verified through an employer – which is the case when you apply through FairQuid – they can take other things into consideration, such as salary and how long you’ve been employed.

FairQuid loans are more affordable. Loan payments come directly from your salary, which means they take the affordability of this into consideration too. Loans through credit unions also automatically include a savings account, which means, over time, your financial health keeps getting better.

Don’t let your debt get the better of you: Now is the time to take control of your finances, with FairQuid: Your Money, Your Way. Find out more and apply here.

Sources:

1. http://www.credit-connect.co.uk/consumer-news/ccj-numbers-rise-highest-level-decade/
2. https://www.theguardian.com/money/2017/feb/06/sharp-rise-in-county-court-judgments-against-consumers
3. https://www.moneyadviceservice.org.uk/en/articles/dealing-with-county-court-judgements-ccjs

Your Money, Your Way

Wouldn’t it be great if you could apply for a loan without worrying that one mistake or debt from years ago is going to prevent you getting some extra money?

Banks and the majority of finance companies only make decisions based on your credit score. This magic number – which not enough people know, or want to know – is the only number that matters to most financial companies. We don’t think that’s right or fair.

A system where the deck is always stacked against you

Credit scores prevent too many people from accessing finance that they are perfectly able to manage and afford. In the building where we are based, there’s an entrepreneur – let’s call him Dave – running a successful company, with investors, paying customers and staff. But Dave can’t get a loan. He pays himself a decent salary – not a huge amount, but enough to live in London, and all he wants is a small loan to consolidate some debts and buy some new furniture.

Unfortunately, when Dave was a student, he got a credit card. Then another, then another. Five in total. Most students have more than one card and overdraft. Being a student is expensive, and banks advertise at them aggressively to take out as much credit as possible. Banks love students. They spend as much as they can, but rarely pay off a card or overdraft in full so that they can make money off them for years afterwards.

He was bombarded with free offers, and the credit cards were ridiculously easy to get. He did keep up all the repayments, except for one card – unfortunately forgotten in a move to London. It had a small unpaid balance – only £50.00.

It took a while for the demand letters to catch up with Dave. Once they did, he paid the balance, including the arrears, but the damage was done. The unpaid card left a black mark on his credit file for six years, making it impossible for him to access low rates in the meantime. His issue wasn’t the debt; it was that he never would have signed up for so many student cards if it wasn’t for aggressive targeting, easy applications and free offers. As a young student, he wasn’t mature enough to realise the long-term impact of these offers.

Banks stack the deck against those who need access to finance the most and credit scores are one of the main ways they screw people over.

A fairer system, with Credit Unions

Credit unions need to make responsible financial decisions, which means they need to factor in the results of a credit check. However, this isn’t the only way they judge loan applicants.

When you apply through FairQuid, they take your employment history and salary into consideration, alongside affordability. One black mark on your score from years ago isn’t going to prevent you getting a loan. Employment history – such as whether you’ve been with your current employer for a year or more. This shows positive financial behaviour, stability and your ability to earn a living. People, not algorithms decide if you can get these loans.

Loan payments come directly from your salary, which means they take the affordability of this into consideration too. No responsible lender should ever provide credit you can’t afford. Loans through credit unions also automatically include a savings account, which means, over time, your financial health keeps getting better.

Now is the time to take control of your finances, with FairQuid: Your Money, Your Way.

Find out more and apply here.

Broken Heart, Broken Credit: Making Sense of Credit Scores

Loans, store cards, credit cards and mobile phone contracts seem like a great idea when you are in a happy relationship.

But when things go wrong, which can happen at any age, monthly payments can turn into hazardous liabilities that can trip you up years later. Taking out credit – which includes phone contracts – for someone else is always risky, even when you are married.

Even if someone else is giving you the money to cover the payments, the debt is still yours. You are legally responsible. One such example is a guy who used his good credit score to get a phone for his girlfriend at university. Let’s call him Andrew. He took out a 12-month contract for her, but six months later, they broke up, and both of them moved to different flats.

A Series of Unfortunate Events

All of the bills were going to their former address. He didn’t change the billing address, and she stopped paying him. He wrongly assumed she would take over payments – which anyone can do, even without access to the account or needing to pass security questions. Maybe she did for a while, but at some point, she stopped paying, and he wasn’t paying anymore.

It took another six months for the debt to catch up with Andrew. When it did, it was over £150, including late payment charges and collection agency fees. He paid it and assumed the situation was dealt with. It was hard enough breaking up with his girlfriend, never mind the added pain of paying off her phone contract.

He was wrong to assume the debt situation was over.

Six years later, after climbing his career ladder, promotions and stable employment, Andrew’s credit has finally recovered. It has taken six years of being careful with money and not being able to get much credit for the one ‘black mark’ to stop affecting his ability to get loans, credit cards, store cards and a mortgage.

Making Sense of Credit Scores

Andrew is not alone. Millions of people – for one reason or another – have limited access to credit as a result of bad scores preventing us from accessing finance many of us can, on current salaries, easily afford.

For many people, credit scores are like a black box. Black boxes constantly record numerous data inputs on planes. In the same way, credit reports record data from numerous sources: our bank accounts, credit cards, phone companies, utility companies, store cards, mortgages, and any applications to apply for more credit.

Most of us don’t know our credit scores. However, you can find out easily enough – using ClearScore (free), Experian (free trial – but remember to cancel) and other free tools. But if you don’t know, yet want to apply for something, such as a loan or credit card, you run the risk of damaging your credit further thanks to marketing from banks and other companies that suggest you will be successful.

Aggressive tactics and offer target those most vulnerable, and more likely to need credit quickly. When people are denied, it can be tempting to try payday lenders, and others that offer money at an extortionate rate. When your credit has been damaged, but you are rebuilding, and in steady employment, payday lenders should not be your only option.

There is an alternative solution, thanks to FairQuid: Your Wages Your Way. If you’ve been employed for at least one year at your current employer, you can apply for a loan through credit unions that take employment history and salary into consideration.

We don’t base everything on credit scores. You also get an automatic saving account as part of this loan: starting from a minimum of £10 per month, with payments for both coming directly from your salary, making budgeting easier. All your employer needs to do is verify your employment and adjust your payroll if you are approved. It doesn’t cost them a penny. Find out more and apply here.

Sick of Walking a Credit Card Tightrope?

More than 5 million British people have credit card debt that they won’t clear in full for ten years. Some consumers are paying £2.50 for every £1.00 borrowed, which is concerning enough that the Financial Conduct Authority (FCA) is going to make banks take action.

Credit cards are everywhere. In the UK, we are top of global league tables for credit card ownership, according to Kantar Media TGI research, with 73% of the population owning at least one credit card. Sixty percent of people pay the balance in full every month, with average credit card users only accessing 7% of the available funds. Some even play one card off against another, making more money than they pay in charges.

However, not everyone has the funds or ready access to credit facilities to juggle cards and pay balances every month. But that hasn’t stopped credit card companies targeting people – even those who can’t afford it – with offers to transfer a balance to a card with 0% interest.

With average household debt around £13,000, we have to wonder if the financial sector is once again following a dangerous and irresponsible path? What about consumers: Are people aware that alternative options exist?

Making Sense of 0% Balance Transfer Offers

Credit cards are useful when they can be paid off quickly, or when you are only using them for small purchases. But for the 3.3 million people paying more in interest than the outstanding balance, banks are earning a considerable profit from those customers. Hence FCA concern; although, action to help them may not come into force until 2018.

We need to remember that banks can’t stop people from spending. All they can do is offer advice, guidance and ensure customers understand their options. It could be said that many are failing in this area, especially when offering someone a 0% credit card balance transfer.

Offering a customer a new credit card, with a long zero-interest rate period (up to 40 months, or more) sounds like a great deal. Transfer fees are often 3.9% or less, with some free or only 1%, which is usually far less than one month’s worth of interest.

Providing someone can afford to pay the debt in full they are getting a bargain, but for many who can’t afford this, they are effectively being tricked into prolonging their debt cycle. Applicants should check they can afford the deal first, with affordability calculators on most comparison websites. Credit score tools, such as ClearScore, will also show whether you are eligible for an offer, which is worth checking, since once a credit check is done it leaves an imprint on your file, thereby reducing your score.

Not only that, but not everyone who is eligible gets a great deal. About half are offered a higher transfer fee with a shorter zero-percent interest timescale. Not everyone who gets these offers is eligible, which means applying leaves a negative impression on your credit file. The FCA has also found that 20% of people on zero-percent deal cards did not expect to pay interest on a new purchase. A classic bait and switch, with banks concealing information they ought to make clear to applicants.

A Better Alternative?

Transferring debt from one card to another is fraught with risks. Especially if you are worried about your credit score. Loans from banks are harder to get than credit cards. Thankfully there is an alternative. With FairQuid, you can take out an affordable loan and consolidate credit cards and any other debts.

We only work with ethical lenders and credit unions, and they use a broader set of criteria to assess a loan applicant, including your salary and number of years with your employer. Minimum eligibility means at least one year with your current employer.

Want a solution this year? Debts you want to consolidate? Or are you looking for an easy way to start saving?

FairQuid is here to help. Our loans have already made debts more affordable for hundreds of people across the UK who want to reduce their debts and start saving. Fill out the form on this page so you can ask your employer to offer this as a completely free benefit to all staff.

Stuck in Persistent Debt: Want a Way Out?

More people than perhaps anyone realises is stuck in “persistent debt”, according to the financial watchdog. Around 3.3 million people are stuck in a cycle of only ever paying the minimum on credit cards and loans, with more money being paid out on interest and charges than the amount borrowed over 18 months.

If this sounds familiar, then don’t worry: You are not alone. The Financial Conduct Authority (FCA) has undertaken a thorough review of financial products and found that these 3.3 million customers are paying £2.50 for every £1.00 borrowed.

Clearly, this isn’t sustainable. The debt won’t reduce when only the minimum is paid, and this cycle of bad debt is forcing people to turn to payday lenders if an unexpected bill lands on the doormat. Not only that, but there are times when someone may have a CCJ they may not be aware of, which in turn is making it difficult to consolidate debt and start saving.

Apart from winning the Lottery, there are solutions that can turn things around for anyone stuck in debt and keen to find a long-term way out.

#1: Manage your credit score

For most people, borrowing is done through high street banks, which means knowing what they know – the information on your credit file – is part of the key to unlocking how to manage your money better. There are several useful free tools around, such as ClearScore, Noddle and Experian.

Having a clear idea what is on your credit file, including any forgotten old debts or CCJs is an important first step. Next, make a plan for how you can consolidate the debts.

#2: Debt consolidation

One of the main reasons people get stuck in persistent debt is that they can’t consolidate what they owe and reduce the monthly payments. Unfortunately, trying to consolidate debts involves applying for a new loan, which normally isn’t an option when credit ratings knock people back.

However, employee benefits loans are available for anyone who has worked for their current employer for more than one year. All you have to do is ask your manager, or HR manager if they will provide these as an employee benefit. It won’t cost your employer a penny. Not one penny.

Loans are arranged through ethical lenders, for fair rates, and deducted straight from your paycheck. A small savings account is also set up, as part of the terms of getting a loan, and most people who have taken out loans are still saving, even after the loans are fully paid. Best of all, even those with bad debts or CCJs are considered. With an employee benefit loan, you aren’t just a set of numbers on a credit file. You would not need to hide having a CCJ. The lenders consider everything, including how you are performing at work and how long you’ve been with your current employer.

#3: FCA Intervention

In time, the FCA – now they understand the extent of the issue with persistent debt – might be able to help those in that situation. But we can’t hold our breath. It may take some time. Right now, they are doing a consultation paper with financial sector companies to understand how to tackle the issue, which means it could be 2018 before they have a working solution.

Want a solution this year? Debts you want to consolidate? Or are you looking for an easy way to start saving?

FairQuid is here to help. Our loans have already made debts more affordable for hundreds of people across the UK who want to reduce their debts and start saving. Fill out the form on this page so you can ask your employer to offer this as a completely free benefit to all staff.

Lending Money to Staff: Pros and Cons?

We aren’t born worrying about money, as Yorkshire Bank likes to remind anyone who uses their cash machines.

And yet, for the majority of adults in the UK, money worries cloud our waking thoughts – and troubled nights sleep – more than we realise. Old debts, credit cards, overdrafts, store cards, consumer credit purchases – such as cars and sofas – can make it difficult to save for a rainy day, for a holiday, or for buying a house. Most of us work to live, making money a recurring source of worry.

It is worse when you are in debt, which most households are, to the tune of £12,887, according to recent figures from the Office for National Statistics (ONS), on average, which includes student loans. Mortgages aren’t included in that figure.

Sudden unexpected costs can throw a household budget into turmoil. From new tires to a broken boiler (1 in 5 break every year), we can’t always control how we spend our money. It would be great if we could, but life can get in the way.

When people don’t have a rainy day fund – which is easier said than done – it can force them into a limited range of options, especially if poor credit scores and other lines of credit prevent them from borrowing more from banks and building societies. Under these circumstances, some will turn to an employer, especially if there is a history of lending money to staff in need.

Should You Lend Money to Staff?

There are a few different ways companies lend money to staff. In London, interest-free annual TfL travel passes are a great way for employees to save money on tubes, trains and buses, with the payments deducted monthly from salaries. For this article, we are talking about when an employer transfers money to an employee as a loan.

Although there are risks, there are a couple of benefits to lending money to employees.

Loans encourage loyalty. Unlike loans from banks, credit unions, or even payday lenders, this money is directly tied to an employer; therefore, an employee is more likely to feel a stronger sense of loyalty to the company. Taking money worries off their mind means they can focus on work, which in turn means they will be more productive, thereby creating more value for your company.

However, there are downsides, which businesses should consider before lending money.

#1: Potential Consumer Credit Implications

Loans to employees can become voidable if there is no 14 day cooling off period given, no annual statement of accounts, and if there are any restrictions on how the funds are used.

The Consumer Credit Act casts a wider net than many employers probably realise, with fines of up to £5,000 and, potentially, two years in prison, if a company is caught issuing consumer credit without a license. Without realising it, companies that lend money to staff could be in breach of the Act.

#2: Discrimination Concerns

From a financial perspective, some employees are a lower risk than others. Unfortunately, lending to one and not the other can cause tension, bad feelings, and potentially, charges of discrimination being levelled against a company.

#3: Loans as a Source of Stress, Financial Dependence

Loans aren’t always a one-off. When the same staff are coming back for loans, emergency advances and quick cash injections, it raises the question as to whether you are doing more harm than good. Clearly, in these cases, they have become financially dependent on the extra money and are living beyond their means.

In the long-term, this is an unhealthy cycle that needs to be broken. Plus, this places an undue financial strain on a business when it is constantly acting as a credit line to employees. There is an alternative solution: Employee benefit loans, combined with a saving account.

Give employees the option of taking a loan connected to their employment – contingent on years of service and performance – with repayments funded directly from their salaries. Credit ratings are still important, but finally, there is a way to ensure past financial performance isn’t the only criteria to judge future stability.

Employee benefit loans take the strain and financial risk off employers, whilst providing staff with a way to consolidate debts and start putting money aside in that rainy day fund. Now that is an employee benefit your staff can take to the bank. Find out more today.

Sources:

> http://www.macfarlanes.com/media/1731/loans-to-employees-consumer-credit-act-implications-ric-march-12.pdf
> http://www.hrpayrollsystems.net/are-employee-loans-a-good-idea/
> http://www.personneltoday.com/hr/how-to-offer-loans-to-employees/

Credit Scores: does the past predict the future?

Credit scores were designed to measure the risk of default by taking into account various factors in a person’s financial history. These factors can be grouped into the following categories below (the percentages are the weights contributing to the FICO score*, the predominant credit score in the US). The credit reference agencies in the UK also follow a very similar model of scoring.
• payment history (35%)
• debt burden (30%)
• length of credit history (5%)
• types of credit used in the past (10%)
• recent searches for credit (10%)
• other, e.g. recently opened account, credit cards, etc. (10%)
*source: Wikipedia

Does the Past predict the Future?
The underlying popular maxim that the financial world seems to be going by is “The best predictor of future behaviour is… past behaviour”. The problem with this approach is that, a large majority of folks (non prime as they would be referred to) find themselves in a classic chicken and egg situation with seemingly no way out.

You will get credit or get credit at a reasonable rate of interest when your credit score improves. But how does one improve their credit scores if it is based on events that have happened in the past? One is supposed to build credit scores by taking out new credit and building a pattern of timely and full repayments. But with low credit scores most of the credit available for this purpose is at a very high rate of interest that is not sustainable for them….Hence the chicken and egg cycle continue worsening their scores further.

Employment as indicator of good credit.
While credit bureaus are trying to perfectly measure the credit worthiness by only looking at the historical payment patterns of an individual, they miss out on adding any variables that can help predict future behaviour independent of the past mistakes. There seems to be no second chances in the institutional finance world. FairQuid believes that there are a few important underlying factors, like employment history, income and expense pattern analysis beyond the standard ratios and job performance of the applicants (HR data around performance ratings and appraisal/promotion frequency). These additional employment factors explain someone’s ability to repay a loan in a timely manner and their overall future financial strength potential much better.

While steadily building up an intoxicated credit file during the crises times, a large segment of the society falls prey to payday lenders who are leveraging on the psychology by keeping the borrowers in their debt circle. The so called “lender sharks” are lending small ticket cash to survive until the next week and charging sky-high interests for this “weekend” cash.

All credit bureau scoring systems rely on previous credit histories and changes in personal details such as address of the borrower. How would they capture the risk to lending someone who just got employed in a new town, changed their address and want deliberately to come out of their financial debt circle? Or being trapped in an expensive debt spiral during the times of uncertainty, unemployment and personal crises like divorce?

FairQuid’s mission.
FairQuid’s mission is to challenge the toxic lending practices and make credit available for employees, by making their hard work and job performance count for them. The size of the income is only one aspect of the character of the employees, other qualitative measures such as length of service at the current employer, recent promotion and a bonus at the end of the year would also be a strong indicator about someone’s financial credibility.