How does a lender decide whether to offer a loan? What’s the difference between a credit file and a credit score, and what affects your credit score? What’s a good credit score and who decides what your score is? And can you borrow if you’ve had a CCJ (County Court Judgment?)
Who better to tackle some of the biggest questions when it comes to borrowing, credit scores and what affects your ability to get consumer credit than an industry insider?
Today’s guest, Craig Pennington, runs Salad, the social enterprise that brings you Salad Talks Money. Craig has enjoyed a successful career in financial services, holding senior leadership roles as a portfolio manager, analyst, board trustee and business founder. Craig is also a mentor to social enterprises, avid theatre goer and Arsenal fan.
We asked Craig to cover some of the most important questions people ask about how firms decide whether or not they can lend. He also gives practical pointers about how to improve your credit score, how to check what your score is, what to do if there’s a mistake on your credit file, and why you must never bury your head in the sand if you receive a notice about a County Court Judgement (CCJ).
We explore how Open Banking can unlock a different way of making fairer lending decisions, too, as Craig explains what happens if you let a lender see your Open Banking information.
And we ask Craig about why he believes access to fair and affordable credit is so important, whose picture he’d love to see on UK banknotes, and what Salad’s recent Kings Award for its Innovation means.
Watch the interview here:
Understanding your credit score from a credit insider
Or find it on YouTube, Spotify, Apple Podcasts, Amazon Music and other podcast platforms – just search for Salad Talks Money.
Jamie Veitch:
Welcome to Salad Talks Money, and today we have a credit industry insider's view on things that you need to know about when it comes to credit scoring and how credit providers make decisions. Craig, welcome. Thanks for being on the show today.
Craig Pennington:
Thank you.
Jamie Veitch:
So first of all, we'll come to your role, who you are and what you do in a moment or two, but let's get straight into it. How do credit providers typically decide whether to lend and who to lend to?
Craig Pennington:
Mainstream credit providers typically use credit scores to make an assessment of affordability.
Jamie Veitch:
Okay. And a credit score, what is it?
Craig Pennington:
It's an amalgam of certain information, but the interesting thing is you need to have credit in order to get the credit score and you can't get credit without a credit score.
Jamie Veitch:
That's a catch-22 situation, isn't it?
Craig Pennington:
It is. There are three main providers in the UK and you'd think with just three. They'd agree on what's good and what's not good, but one has a scale up to 710, one has a scale up to 1,000, and another one has a scale up to 1,250.
Jamie Veitch:
So I can't really say to you what's a good score. That's very difficult to say what a score is.
Craig Pennington:
Correct.
Jamie Veitch:
And that score is an element of how then a lender makes a decision, but the lender doesn't necessarily see the score. Is that right? The score is something that's meant to be helpful to people. How does it all work?
Craig Pennington:
Well, there are different scores. A consumer sees one score. You might get that in your banking app.
Jamie Veitch:
Yep.
Craig Pennington:
But some of the credit reference agencies have a different score that may go to the credit decider, the lender, and some of those scores can be negative.
Jamie Veitch:
Really? Okay.
Craig Pennington:
Yes.
Jamie Veitch:
So we are thinking naught to 1,000 or naught to 700. We're missing out that negative element. And what affects what that score actually is then?
Craig Pennington:
It's have you used credit? Have you used it well? So have you paid your bills on time? Have you had you've paid your bills slightly late? Are you on the electoral role? That's a visibility factor. If you've had a mobile phone contract, have you kept up with those payments? So there's many factors that go into your credit report.
Jamie Veitch:
And those factors then some of those are factors that relate to whether you are using credit already. Some of those factors are things that perhaps you can control, like for example, whether you are on the electoral role. But how do people go about improving their credit score if they know it's not as good as they want it to be?
Craig Pennington:
So if you have low or no credit score, there are some simple things you can do. Register to vote, get on the electoral register. You don't have to be publicly detailed on the register. You can still register to vote without having your name and details on the register. So if you're concerned about your identity fraud or theft, then by all means, keep it off the register. But by registering to vote, you can help your credit score. Pay your bills on time if you can. Report your rent. Credit reference agencies are increasingly taking rent payments into account in viewing their credit scores in the same way that a bank will, if you had a mortgage with a bank, they would look at the frequency and the regularity of your mortgage payments.
Jamie Veitch:
And when it comes to reporting your rent, how do you go about doing that? So how do you report your rent to the credit reference agency?
Craig Pennington:
You need to ask the credit rating agencies and there's three main ones, but there are some other smaller credit rating agencies to reflect and record your rent in their payments.
Jamie Veitch:
So you approach them, you go to their website, you set up an account in your name, and then you can see what score they've given you and you can ask them to do that, that kind of thing.
Craig Pennington:
You can, and it's free. There are some providers have paid for subscriptions to do this, but you don't need to pay for it. It's a free data provision.
Jamie Veitch:
So you don't have to pay for a service to do this.
Craig Pennington:
You don't.
Jamie Veitch:
You can go and do it and you can do it for free. I think that's really important information to know. I think the other thing as well is if you take a look at your score with one of the three main agencies, sometimes people see mistakes in their score, don't they? Or mistakes against their name. Is that common? And if people do see a mistake, what should they do about it?
Craig Pennington:
You can contact them. If you can show and prove that that mistake was made, then they will, on review, correct that mistake. And getting access to your score is free. You can request it from the credit rating agencies. They're in apps now. Most banks offer the ability as well to surface one or more of the credit reference agency scores in the record they have against you. But by all means, check it, I encourage you to check it, and if you spot an error, you can correct it for free.
Jamie Veitch:
Great. Now, we mentioned a few things that people can do to try and build up their score. And you also talked about one thing to protect your score is pay your bills on time. If someone like many low and middle income households is having any problems with paying bills on time and they know that's going to be a problem, is there anything they can do to protect their score, to protect it from being damaged?
Craig Pennington:
I think the best thing people can do is act quickly. Research shows that individuals who get into difficulty on paying outstanding debts, they tend to only come forward after more than 12 months. By which time, to be honest, the damage has probably been done to your credit score. If you're having difficulty, contact be it the mobile phone provider, the utility company, a loan company, get in touch. Say you're having difficulties and see if you can get some form of payment holiday or lower but more regular payments. Just making a small payment against any debts outstanding is one way of protecting your credit score.
Jamie Veitch:
So again, that's really important information. Don't stick your head in the sand.
Craig Pennington:
Correct.
Jamie Veitch:
Do talk. And actually the companies themselves want to talk to you. They don't want you to not communicate with them.
Craig Pennington:
Correct.
Jamie Veitch:
Okay. And another thing that can affect people's ability to get credit now is their score being damaged or impaired by something that's happened perhaps quite a few years ago, which their credit score today doesn't necessarily reflect what had happened to them a few years ago or perhaps mistakes that they made. So people have talked about problems staying on people's credit files for up to six years, for example. And one of those things that can stay on people's credit files as a marker is something called a CCJ. And I wonder if you could tell us a little bit more, first of all, what CCJs actually are.
Craig Pennington:
So CCJs are a County Court Judgment where a court has made a ruling against you because you have not settled an outstanding debt. And you're absolutely right. If it happens to you and a CCJ is issued against you, it does negatively impact your credit score for as much as six years. And it can be for something as small as a car parking fine, which you didn't get notified about or you just didn't open that letter or you moved flat and quite frankly, it wasn't forwarded onto you. So that is a really important thing to find out. If you're struggling to get access to credit, find out the reasons why. You can look at the Registry Trust website and for a small amount of money, you can see if there are any outstanding CCJs against you.
Jamie Veitch:
So that's well worth doing.
Craig Pennington:
It is.
Jamie Veitch:
Particularly if you're about to apply for credit.
Craig Pennington:
Yes.
Jamie Veitch:
And what if, because this does happen as well, people receive a letter through the post that says, "This is a CCJ claim form." In other words, you are about to get a CCJ if you don't act. And sometimes people might receive one of those and think, "Don't know anything about this. Is this a scam?" Or, "Well, there's probably nothing I can do about this." But what should people do if they get a CCJ claim form?
Craig Pennington:
It goes back to your point about putting your head in the sand. Don't put your head in the sand. The letter is likely, if it's genuine, it will have come from a court. It will look very official. It will state the outstanding debts that they're looking to file a CCJ against you. If you agree with the outstanding debt, as I say, you might have never actually heard about it, but if you then recollect it, "Oh yeah, okay, that was my parking fine." There is an admission form which you can complete and you can pay the debt. If you say, "Well, that wasn't me, that's not my car." If there's some error, you can cover a defense form. And in doing so, they will look into the fact and if it's correct that it's a mistake, then you won't get a CCJ against you.
Jamie Veitch:
Okay. So that's really worth doing because if you get that CCJ against you, that could have quite a profound impact on your credit score, on your credit file.
Craig Pennington:
And going back to an earlier point as well, if it's a large amount of money, I mean more than 40% of CCJs are for outstanding debts of less than 500 pounds. But if you can't afford to repay it, still get in touch, offer to make a small payment, offer to make small regular payments, and that will help.
Jamie Veitch:
Right. Thank you for that. I think that's a really key point. So it might be small because a lot of CCJs are for relatively small amounts of money in the grand scheme of things. But if it's a large amount of money, don't, again, ignore it and think, "I can't possibly pay that." Pay it off in chunks. Make payments, make an offer to pay it in smaller chunks.
Craig Pennington:
Yeah.
Jamie Veitch:
All right, great stuff. But that point that 40% of CCJs are for less than 500 pounds and yet someone gets a CCJ and that's going to affect them for years, for years, which I suppose brings me into my next question, which was going to be, if I've got a CCJ, can I borrow? Or is that going to be it?
Craig Pennington:
Most mainstream lenders will not lend to you if you have a CCJ. There are exceptions. Salad is one of those exceptions.
Jamie Veitch:
And why is that? Why would most mainstream lenders just automatically say no?
Craig Pennington:
I guess it's a record of bad payments in the past, indebtedness, defaults, arrears. And because even though it might've happened five and a half years ago, it's still on your file. It negatively impacts your score. And when they're making a decision on a score, yes, no decision, they look at the score and if it's too low, it's a no.
Jamie Veitch:
Yeah, that's it. It's algorithm says no kind of thing. There we go. So how is it or why is it first of all actually, why is it that Salad can lend in some circumstances to someone who has had a CCJ or has a CCJ on their file?
Craig Pennington:
Yeah. We've taken a different approach. So we use open banking to make our affordability decisions and to assess a person's ability to repay their loan. And what's open banking? Well, open banking is basically your bank statement. It's all the transactions that you run through your current account. We take that into effect to give a real-time assessment of your affordability. So it's not based on what you did or might've done six years ago, five years ago, four years ago. It's about what you are doing now. What's your income? What's your expenditure? Can you afford the loan that you've applied for?
Jamie Veitch:
So people give access through open banking. So you are able to say, "Okay, this is the income that you have coming in. These are your outgoings. We see that you can or you can't afford it."
Craig Pennington:
Correct.
Jamie Veitch:
And why does Salad take this approach?
Craig Pennington:
Well, I think the main reason is we think that the credit decisioning market is broken, that the approach of just looking at a credit score, even if you look into detail behind a credit report, data can be incorrect, old, and not reflective of that individual's current circumstances. So we believe that using a credit score is detrimental to many people, particularly those who live to their means.
Jamie Veitch:
And is this successful?
Craig Pennington:
Well, Salad's seven years old. We've got a loan book approaching 100 million pounds and we've shown that it can be done responsibly, that customers can afford it, that we get great customer reviews. We've got over 15,000 Trustpilot reviews of five stars. And that as an organisation, we're serving a segment of society that quite frankly does not get served by mainstream finance.
Jamie Veitch:
So that would suggest there's a huge demand that people value it very, very much indeed from those Trustpilot reviews. And that the loan book has grown significantly and those people are paying back the loans.
Craig Pennington:
Correct.
Jamie Veitch:
So the assumption from open banking or the test from open banking in terms of income and expenditure and the assessment that is then made is proving to be as accurate as any other way of doing it.
Craig Pennington:
Well, we believe it's more accurate because we're providing credit to people who would be excluded by mainstream finance. So it's unlocking access to credit. And Fair4All Finance estimate over 20 million people in the UK have difficulty accessing affordable and fair credit. And we believe Salad is instrumental in making sure that people do have access to something which quite frankly is a basic financial tool in terms of managing your budgets.
Jamie Veitch:
Yes. And being able to pay for emergencies or to pay for things over a period of time. And it's something that is very easily taken for granted if you can afford it. And if you can't afford it and options aren't available, then that can simply make a hard situation even worse.
Craig Pennington:
If you're, as many individuals and households are, living to your means and something unexpected happens, you drive to work, you live in a rural area, you need your car to get to work, your car breaks down, you don't have the savings to pay for that, you don't have a credit card, you don't have an overdraft. How are people expected to meet that unexpected expenditure without being able to access small short-term credit?
Jamie Veitch:
Indeed. Yeah. So it's a valuable and valued way of providing credit to an underserved market. And I wonder whether we can just do a quick refresher on anything we've missed there in terms of things that affect your score, things that people need to think about in terms of either boosting or protecting their score before I move on to my next question for you, Craig. We've covered a lot of ground, but is there anything else that's worth flagging up to folk?
Craig Pennington:
I think if you can, go over the basics, register to vote, pay your bills on time. If you do need credit, don't make multiple applications at once because every time that you go in to make an application, it's noted on your file. And if there's a flurry of applications, that's actually negative for your credit score. But if you are struggling to make material headroom and improving your credit score in the short term, then find those lenders that take an alternative approach and apply there.
Jamie Veitch:
Yeah. Okay. That's great. Can I just ask you about the difference between a hard search and a soft search when someone applies for credit? What does that actually mean?
Craig Pennington:
So websites will say you can put in a handful of details and if they do a soft search, they'll come back with an answer as you are likely to be offered credit or you won't be offered credit. And the soft search does not leave that negative mark on your file. However, if you go on to make a full application, so they'll ask you even more details about yourself and then they come back with a definitive yes, no, that's a hard search.
Jamie Veitch:
That's a hard search. And if you're doing lots of formal applications for credit, that's going to be a hard search. Too many.
Craig Pennington:
That's correct.
Jamie Veitch:
Too frequently or near each other. That's going to be problematic.
Craig Pennington:
That's right.
Jamie Veitch:
What's credit utilisation and how does that affect?
Craig Pennington:
So if you have a credit card and say for example, your credit limit is 1,000 pounds, but you're using that a lot during the course of a month. So say you build up, you make expenditure in a month up to say 950 pounds, that is regarded as a high utilisation of your credit.
Jamie Veitch:
Yes.
Craig Pennington:
And which is strangely enough, negative for your credit score. So you've been given a credit facility, you are using the credit facility. Even if you repay the monthly balance in full, by having a high utilisation, it's negative.
Jamie Veitch:
Yeah.
Craig Pennington:
So I mean, the rule of thumb, it's a bit of a secret as to what you should do, but the rule of thumb is keep to around half of your credit limit on a credit card and then you won't be damaging your credit score.
Jamie Veitch:
Again, I think that's really important insight that a lot of people might not know about. It's kind of, that's the limit I've been given. I'm not even nudging it. I'm just maybe within 10% of it. And that's going to have a massive impact.
Craig Pennington:
Yes.
Jamie Veitch:
Yeah. Okay, that's really useful. Thank you very much, Craig. So let's just talk a little bit about you. You're the chief exec of Salad Finance. Tell me a little bit about the role and really why did you join Salad?
Craig Pennington:
I think it's really the innovation and the different approach to a problem that is being experienced by millions of people. So the fact that Salad doesn't use credit scores in its loan decisioning. Instead, it uses open banking, which has been around for many years, but very few people have started to use it and adopt it for credit decisioning. But it is a far more accurate reflection of an individual's current financial status than is a credit report. And what Salad has shown is that they've taken this technology, they've developed it over time. It's improved via machine learning. We have something which is called a Crouton score, which is not a credit score, but we have our own score. And that combined with our analysis of people's open banking data gives us a clear view of what a person can or cannot afford. And we have shown through growing the loan book to nearly 100 million pounds that we can do that successfully.
Jamie Veitch:
So you're proud of that innovation that is then unlocking access to credit for people and the success of the business. And what's driving you then? Is it a sense of unfairness in credit? Is it the innovation and the chance to be leading something that is so innovative? Is it a combination of those factors?
Craig Pennington:
It's a combination. For me, people should have access to credit irrespective of their background. I think yes, while some people will be in financial difficulties because of some poor decisions that they've made or quite frankly, life events that's come along and sort of whacked them sideways. And of course we don't lend to people who've got a gambling problem. And so addiction is an issue as well. But that being said, there are millions of people in the UK who live to their means, who manage their finances responsibly, but occasionally do need access to short-term credit. They're not finding that from mainstream. They should get it from somewhere. And it's great that Salad and other community finance providers are looking to fill that gap in the market. But also, I mean, I'd love to be able to say, "Job done. We've served 20 million people." But there is a lot more to do.
Jamie Veitch:
Yes, indeed. And you mentioned the scale of the issue here in terms of the unmet demand and the Fair4All Finance research. More than 20 million people. I mean, it's astonishing. So speaking to the point you made about innovation, Salad was recently awarded the King's Award for Enterprise, specifically for innovation. What does that mean for the business?
Craig Pennington:
Well, you asked before, does it work? Is it successful? And I can talk about the size of the loan book and how many customers we've helped, but receiving the King's Award, we're the first lender in the UK of its type to receive the King's Award for Innovation. And that is a huge independent stamp of approval on the technology, the drive and ambition of the organisation Salad has and the people behind it to ensure that people receive a fair shot at something which, as I say, is a basic financial tool.
Jamie Veitch:
So it's enormous endorsement in one of, well, probably the UK's most prestigious business award because it's actually so rigorous in terms of how it's... Yeah. Great. Well, wonderful in terms of the recognition there. Absolutely tremendous. I want to move us on then to a question I love to put to people, which is about paper money. I mean, it still exists. We still use it from time to time anyway. I've got a nice crisp 10 pound note in my pocket and of course it's got a picture on it because there is a tradition of putting pictures of people on UK banknotes and that has evolved. New people have been put onto banknotes. We have Jane Austen. We have, of course, Churchill has been on banknotes. Alan Turing is on banknotes now. If it was up to you and you could put a new person onto a UK banknote, who would you choose?
Craig Pennington:
Well, Jamie, this is incredibly dangerous territory. I'm not going to get into the Badger versus Churchill debate. But if it was up to me, I think somebody who encapsulates drive, stamina, teamwork, wanting the best results, achieving the best for not only themselves, but the team and the people around them, it's got to be Declan Rice. As an Arsenal fan, I've got to say I would have Declan Rice on the back of a tenner.
Jamie Veitch:
There we go. Well, let's get on the phone to Declan now. Great stuff. I love hearing who people suggest. This is brilliant, Craig. Thank you very much indeed. So we are talking with Salad CEO, Craig Pennington, on Salad Talks Money. Craig, this has been some fascinating ground. It is really good to have an insider's view on the things that affect people's ability to get credit and how the industry actually makes a decision. And I think those insights that you've given in terms of protecting, building credit scores are really, really applicable and very, very need to know. On that theme of need to know, is there anything else you want people to know before we sign off today?
Craig Pennington:
I think there are certain things you can do to improve your credit score, but if you are in financial difficulties and you're facing demands for payment, be it on one or multiple sources, my key takeaway or recommendation is simply contact them, speak to them. And if they're not very helpful, speak to StepChange or to Citizens Advice and they can help you in that situation. Getting back on track with indebtedness is really important and it will have consequences beyond 5, 10 years. So it's really important to not ignore those demands, not ignore the difficulties in life and talk to someone.
Jamie Veitch:
Brilliant. Craig Pennington, thank you ever so much for your insights today.
Craig Pennington:
Thanks, Jamie.
What next?
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Salad Talks Money is brought to you by Salad, a social enterprise committed to financial inclusion and recently honoured with a King's Award for Enterprise for our outstanding achievement in innovation, and presented by Jamie Veitch.