The Affordable Credit Challenge award enables the credit union to build software that will help members make a successful loan application.
Currently when a member is turned down for a loan, we can’t tell them precisely why.
It might be because there are missed payments on other loans. Maybe there’s a recent County Court Judgment. Perhaps there’s just too much debt. In some cases the proposed loan payments aren’t affordable.
To solve this a new mobile app will show borrowers more of the information that’s used to make lending decisions.
About Financial Health Indicators
We know that credit scoring isn’t easy to understand. And, to be honest, it’s not something we particularly like either. Instead we will be working with our software partner to develop Financial Health Indicators (FHIs).
Covering spending, borrowing and saving, FHIs will be shared with the Credit Union’s borrowers. The indicators will be used to let applicants know how to improve their credit profile, increasing the chances of getting a loan.
FHIs will show movement from red through amber to green. Borrowers will be provided with tips, making it more likely that loan decisions move from ‘no’ to ‘yes’. Then, when the lending criteria is likely to be met, a ‘one click’ loan application is sent to your Credit Union.
Helping you budget
As well as credit reference agency information we offer an Open Banking service, enabling members to provide temporary access to a bank account so the Credit Union can retrieve 90 days of bank transactions. We have around 200 members using Open Banking each month.
Read more about how we use Open Banking.
Subsequently, the 90 days of transactions are presented back as an income and expenditure budget using the 50/30/20 rule.
The method is simple. Households split their income into three different categories: essentials (needs: 50%). Flexible spending (wants: 30%). And financial plans (goals: 20%).
Housekeeping, bills and transport fall into the first category. General shopping, restaurants, hotels and holidays are not essential. They’re classified as ‘wants’. Finally, 20% is spent on financial goals. Paying down debt, saving for the future.
Of course, everyone’s spending habits present an opportunity to save money. This information will help borrowers find ways to improve their budget.
Furthermore, all this information will be provided to members free of charge.
Importantly, there will be no obligation to apply for a loan from the app. Its an additional opt-in service. The Credit Union will be providing financial education for its members and helping applicants make better loan decisions.
The app will be ready early next year. We’ll let members know when early access is available.
In the meantime, the Credit Union and our software partner – NestEgg, want to hear what you think about our ideas.
We are keen to ensure that the app meets member needs. So we’re looking for feedback on our plans and for members to answer a few survey questions. We’ll give every participant a £10 Marks and Spencer voucher in return for their help which shouldn’t take more than a couple of hours in November and December.