The ‘cost of credit' challenge facing women
A NEW financial challenge for women has just emerged which I'd like to bring to your attention this week: the ‘gender credit score gap'.
This shows that, as a woman, due to social and other circumstances, you face lower credit ratings than men, making it more difficult and certainly more expensive for you to borrow.
We aren't just talking a few thousand pounds, either.
The costs of the credit score gap for women are huge: a new report (Credit Karma: Research on women's credit scores) shows that over your lifetime, you will pay on average nearly £17,000 more than a man for your borrowing.
The other challenges, which we have dealt with extensively in the past, are the ‘gender pay gap', where men tend to earn more than women, which feeds into the ‘gender pensions gap', which means that women tend to have much lower pensions than men.
Women are much more likely to take a mid-life career break than men, once they start a family, and when they do return to work, they're much more likely to go back part-time: the Office for National Statistics tells us that 75 per cent of part time workers in the UK are women.
Then of course, the situation with the state pension has also been unkind: women who, until recently, believed they would get their state pension at age 60, were told that pension ages for both genders was being equalised at 65. Suddenly, for many, their retirement plans were put back by at least five years – and now it's six years.
The current state pension age for both genders is 66, rising to 67 in 2026-2028.
Then there's the Covid pandemic, and the business sectors hardest hit have been retail, hospitality, hairdressing, beauty salons and personal care – the very ones which are the largest employers of women.
Mums have been hardest-hit here. The Institute for Fiscal Studies tells us that “Of parents who were in paid work prior to the lockdown, mothers are 1.5 times more likely than fathers to have either lost their job or quit, since the lockdown began. They are also more likely to have been furloughed.”
Now let's get back to the ‘cost of credit' challenge.
Your credit rating plays a major role when lenders decide whether to offer you a loan, and what interest rate they will offer. However, average women's credit score is 652, compared with 705 for men.
The reasons are mainly societal. Nearly a third of women have some or all of their financial agreements in their partner's name; women are less likely than men to have credit cards, mortgages, and personal loans, which if responsibly used will pump up your credit score.
Women are more likely to use ‘buy now, pay later' products compared to men (25 per cent vs 19 per cent), many of which are unregulated, so that even if you do maintain a good repayments record it fails to improve your credit record.
With less agreements in your own name, or in many cases none at all, women can offer little evidence that you can borrow responsibly, which leads lenders to regard you as higher risk.
There are many things you can do now to improve all aspects of your long-term financial situation, particularly in the areas of savings and pension planning.
Would you agree that, given all of the above factors, a little financial advice could go a long way?
:: Michael Kennedy is an independent financial adviser and pensions specialist and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice Ltd or at www.mkennedyfinancial.com