Tag: Payday loans

Your Wages Your Way

Worrying about money is a horrible feeling. It stops people sleeping at night. It grips you in the pit of your stomach. Money worries can get in the way of even the brightest summer day.

No one wants to worry about money, but even those who earn decent money – or at least have a stable job – can find themselves in a tricky position. In the UK, average household debt is around £13,000, and around 70% of us have no savings.

So it doesn’t take much to unsettle most people finances: A boiler breaking, car fails an MOT, an expensive month with too many Birthday’s, not to mention, for families, Christmas and the Summer Holidays.

The problem is, banks aren’t always willing to lend extra money when someone is in a tight spot. Banks assess whether they can lend based on credit scores. When applying for a loan, overdraft extension or credit card, it doesn’t really matter what you say. That is one reason you can apply online without speaking to anyone these days – people don’t decide who gets money anymore, algorithms and credit files do.

If you have a good credit rating, then getting access to a little extra money – or having that money (or credit) already available shouldn’t be an issue; but we know this isn’t always the case. Not everyone has an ‘excellent’ credit score.

Millions of people are stuck in ‘persistent debt’, paying off old credit cards, loans and overdrafts. And then there are others, whose credit files are still affected by acts of kindness that get turned into bad debts, such as when people get phones or loans out for other people who then don’t pay, or move away.

Bad credit scores still penalises people who have steady jobs and salaries that cover all their costs, except for unexpected bills and other expenses. You shouldn’t have to turn to payday lenders to rescue you from a tight spot.

There is another way. For anyone who’s been employed at least one year with their current employer, you can – through credit unions – get a loan that should pay off any current debts and help you start to build up some savings.

All you need is your employer to verify your employment. If you are accepted for the loan (which comes with an automatic savings account – starting from a minimum of £10 per month). People, not algorithms decide if you can get these loans. Loan and savings payment come straight from your salary every month, just like Ride to Work schemes, travel and childcare schemes and other salary deductibles (council tax).
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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

FairQuid: Your Wages, Your Way.

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.

Payday lender to pay £34m to customers

Today it has been reported that Payday lender, CFO Lending, has agreed with FCA to pay £34 million to 97,000 customers for its unfair trade practises. Some of the unfair practises being referred to are overcharging customers, sending threatening letters, and failing to help customers who found themselves in financial difficulty. More detailed list can be found here.

News like this affirms our belief and strengthens our resolve that we are on the right track. FairQuid’s Credit Union partners are a good viable alternative to consumers falling prey to payday lenders in their times of financial need. We not just help with short term borrowing needs but also help in creating a savings kitty that can be relied upon for future needs (even though it may mean you don’t come back for another loan the next time, but that is ok with us). More details on the scheme can be read here.