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Understanding The Gender Credit Gap

Gender balance

This week, we heard a shocking statistic: over a lifetime, women will typically pay almost £17,000 more than men to borrow money.

The stat comes from a new report by credit checking company Credit Karma. They have taken a look at our nation’s credit health, and found that there’s a significant gender gap. A range of factors mean that women will often look less appealing to lenders, leading to higher interest rates and ultimately bigger charges on spending.

So why is this happening?

Well, according to the report, the biggest factor is a tendency for couples to seek credit in one person’s name. Specifically, 31% of women were found to have at least some of their financial agreements set up in their partner’s name. This means that they aren’t able to build a strong financial history, so lenders don’t necessarily get a clear idea of their ability to repay when running a credit check.

This wasn’t the only factor. Another interesting finding was that women were typically more cautious about taking out new lines of credit, opening up credit cards and taking out mortgages at a slower rate than men. Again, this can limit the amount of financial history that’s available for lenders to review.

Of course, caution around taking out credit is no bad thing – it’s important to only use what you can afford. However, the simple act of opening a credit card and using it to pay a couple of bills each month can actually have a very positive impact on your overall credit rating. As long as you pay it off in full each month, it shouldn’t have any negative impact on your finances at all. In some cases, you can even earn money by taking advantage of the various reward and cashback cards currently on the market.

Addressing the credit gap

The apparent gender credit gap may be a sign that the way we assess financial credibility isn’t fit for purpose. Penalising people for not using credit cards or having financial arrangements in their partner’s name may not be ideal – and could suggest that it’s time for reform.

However, the current system is very well-established and unlikely to be going anywhere soon. In the meantime, it’s important for everybody to take a proactive approach to managing their finances, understanding what lenders see when they run a credit report, and taking steps to address any shortcomings:

  • Use a credit checker to take a look at your credit score. Your credit score is an indication of how healthy your finances look to a potential lender. When you apply for a credit card, mortgage, new rent agreement or even a bank account, the financial organisation will take a look at your credit history. Credit Karma is one company that will let you check your score for free, and there are many others. Some banks even now offer this service – NatWest, for instance, provide a free credit checker as part of their banking app.
  • Pay your bills on time each month. This means everything from catalogues to overdraft fees, credit cards to water and phone bills. Late or missed payments can show up on your credit report for years.
  • Make sure some of your accounts are in your own name. Whether you’re male or female, it’s important to make sure you have some evidence of your ability to make payments. Make sure some of your utilities are in your name. If you live in shared accommodation or with your parents, then getting a mobile phone contract in your name may be one option. You could also consider opening a credit card. This is an excellent way to build up a credit history, and lenders like to see that people are using a small amount (no more than 25% of what’s available to you) each month. Just make sure you only borrow what you can afford to pay, and ideally pay in full every month.
  • Remember that payment plans such as Klarna will also affect your credit score if you miss a payment, so use them responsibly.

The most important takeaway from Credit Karma’s research may be the importance of each of us becoming fully engaged with our own finances. By understanding your various financial relationships and the impact that they have on future borrowing activity, you can make yourself more attractive to lenders – and secure cheaper borrowing as a result.

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