Every now and then, someone turns up on our Dealing with Debt discussion board to blame the banks for letting them get into a financial mess. Irresponsible lending, they call it. I call it irresponsible spending. But maybe we’re both right.
There’s no doubt that some people just aren’t very good at managing their money and it can’t help when credit is so easy to obtain. But then lenders don’t really have that much to go on when they’re deciding whether to let you have a new credit card or loan. Your credit files may look clean as a whistle because you’re making your repayments on time but they don’t tell a lender whether you’re overspending.
The banking industry has shared information about customers who have fallen behind with their payments since the late 1980s. More recently, many lenders have been sharing further information about outstanding balances and credit limits. And now they’re set to open up even more.
Four of the UK’s biggest credit card lenders – Barclaycard, the Co-operative Bank, Egg and Abbey – have just announced plans to share ‘behavioural’ information on credit cards in the hopes that it could help to identify customers getting into financial difficulty. This will include:
* How much is being spent on the card each month
* How much is being repaid each month
* How much cash has been taken out
* Any recent increases or changes to credit limits
* Any cheques sent for payment which bounce
* How many people can use the card
In theory, lenders should be able to get a better idea of a person’s spending habits rather than just their borrowing practices and will, therefore, be able to make better decisions.
This could, of course, mean that it may be tougher in future for people to get further credit but to my mind, that’s no bad thing. It could also make credit more expensive for people who appear to be overstretching themselves but that’s no bad thing either. The more it costs to borrow, the more likely it is that people will think twice about it.