Credit scorer warns borrowers lacking financial maturity to understand debt
MORE than half of people with a personal loan or credit card debt may have borrowed too much due to a low level of financial maturity, a credit scorer has warned.
Aire, which uses artificial intelligence rather than traditional methods to help assess borrowers, asked a sample of more than 2,000 adults whether three financial commitments – a £9.99 monthly Spotify fee, £7.49 a month for Netflix and a £20.26 weekly payment for a sofa – would come to above or below £1,000 over a year.
Only 59 per cent of UK adults answered correctly, suggesting the remaining respondents have low levels of financial maturity.
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Aire, which unveiled a partnership with Zopa in July, found that 41 per cent of UK adults have credit card debt and 13 per cent have taken out personal loans.
However, Aire’s chief executive Aneesh Varma warned that many people still end up in their unauthorised overdraft.
“This affordability squeeze means that even if some people manage to pay down their debt, they will have to make drastic cuts elsewhere and face financial distress in the process,” Varma said.
“This hurts the economy in multiple ways beyond the financial services. We can get ahead of this by enhancing credit assessments across the ecosystem by deepening our understanding of an applicant’s capacity and character. And for once, technology allows us to solve this. Everyone can be better off.”