A British Man's Take on Debt, Saving & Investing

70% of the UK Population Have Poor Credit

Posted on April 19, 2012 by Lee

I was reading an article on The Money Principle today where a guest-poster from a while back, announced he finally had a job. So firstly well done Ewan! I know how difficult the employment market has become, and securing a job is no mean feat in the current economic climate.

There are 3 things in that article that really struck me but before I get on to them, I just want to re-iterate that this post is not about Ewan but the wider points raised by his post. I really do mean “well done mate” when I say it.

1. 70 people out of 100 rejected at the credit check stage

When Ewan applied for the job he had to submit to a credit check. This is fairly standard these days for a considerable number of roles, but particularly pertinent for his entry into a financial institution. What’s frightening however is that he was among 100 people to do so. The next time he met up with his group, only 30 remained.

Now I appreciate a sampling of 100 people in one geographical area for one employment window for one employer is not representative and isn’t necessarily statistically valid for extrapolating countrywide data. But it is still incredibly telling.

People who are out of work are applying for anything they can find. They would have known the credit check would have happened, and yet applied anyway. This either suggests they do not even know they have poor credit, or did know but tried anyway. How can 70% of people applying for a job, have a credit rating too poor to work in a financial institution?

Your credit rating is important, guys. Look after it. On a related note though your Credit Score is irrelevant. Don’t fall for it. 😉

Ewan was on Job Seekers’ for 4 years

To my non-UK readers, Job Seekers Allowance is a social benefit paid by the government for people out of work. It pays £71 a week (£284/month or roughly $450 USD). It is better than nothing, and coupled with other available benefits such as Housing Benefit, Council Tax Benefit and others as permitted, can allow you to function to a degree when outside of employment.

Now bear in mind I know nothing about Ewan. I have no idea how old he is, what his skills are, disabilities if any an so on. I also don’t know if he’s fresh out of university, or had a job previously. But assuming he’s a run-of-the-mill guy living in England somewhere, that’s frightening whatever way you shake it.

A couple of days ago I was saying why everyone needs an Emergency Fund. In it, I was saying you should have around 6 months of living expenses. I had deliberately ignored the potential for benefit claiming within that fund, as sometimes they can take forever to sort out. Sometimes you are disqualified for a period. I’d taken the view that when an emergency strikes the chances of anything else falling into place when you need it to, probably won’t!

But even with benefits, could your emergency fund eek out to 4 years? I’m curious, and want to see. I will use values from my area, and use my home as an example.

If I am made unemployed tomorrow, I will claim:

  • Job Seeker’s Allowance (£71 a week)
  • Housing Benefit (£77 a week)
I am apparently ineligible for Council Tax Benefit but the online calculator didn’t disclose why. In terms of benefits, per month I would be entitled to £592.
Let’s say my monthly living costs are as follows:

  • Rent: £415
  • Bills: £200 (household utilities, council tax, etc.)
  • Food: £100 (random figure. £200 seems reasonable for 2)
  • Misc: £150 (travel, contracts, mobile phone, etc)
My total outgoings per month would be: £865. This leaves me £273 short every month. But that would be happily covered by my Emergency Fund and assuming I make absolutely no changes to my spending – which I would, naturally – would cover me for a couple  of years instead of just 6 months.

4 years, though?

The length of the recruitment process

Ewan, don’t take offence at this! If you have gone over and read the post, you might be surprised at the steps Ewan had to take to get the job. Assessment centres, online aptitude tests, one-to-one interviews, role play, and both inside and outside training before and after. For a job paying £12,750 ($20,300 USD) annually.

That’s incredible (in my mind). I’ve had the same job for the last 10 years, so things have surely changed in those times. I had to go through all those and more but critically, for significantly more money. When I applied for a sales advisor position at Tesco 11 years ago for only slightly less than Ewan is taking home today, I had a 15 minute interview with the store HR manager. That was it.

Are employers in part the problem for the economic climate of today?

Well done Ewan for breaking the benefit cycle! Despite the negativity in parts of this post I am truly happy for you! I just couldn’t ignore the wider questions your post raised.

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Category Credit Reports, Employment, Money Management, News & Statistics
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