There is a quiet crisis unfolding in the UK’s financial system, one that rarely makes front-page news but touches the lives of millions of people every single day. Despite a banking sector that generates billions in annual profit, a substantial portion of the UK population finds itself effectively shut out from mainstream credit. These are not necessarily people in dire financial straits. Many are employed, meet their household bills reliably, and manage their money with considerable care. Yet when they approach a high street bank or a major lender for a loan, they are turned away, often without a meaningful explanation. The result is a growing credit gap that is widening inequality, restricting social mobility, and placing enormous pressure on the people least able to absorb it.
The scale of the problem is significant. Research from Fair4All Finance suggests that around 17.5 million adults in the UK live in financially vulnerable circumstances, and a large proportion of that group either cannot access mainstream credit at all or can only access it on terms that are punishingly expensive. The causes are varied, but the most commonly cited barrier is credit history, or more precisely, the absence of a sufficiently positive one. Traditional credit scoring models were built in an era when financial lives were simpler and more uniform. They reward long-standing credit relationships, consistent use of revolving credit, and stable, salaried employment. For the millions of people whose lives do not conform to that template, the system consistently underestimates their creditworthiness and leaves them without viable options.
Who Falls Through the Cracks
The people most likely to find themselves on the wrong side of the credit gap are not a homogeneous group, and that is part of what makes the problem so difficult to address through conventional policy levers. Young adults who have simply not had enough time to build a credit file are turned away alongside older individuals who have recovered from a period of financial difficulty years in the past. Migrants and recently arrived residents often find that their credit history from another country counts for nothing in the UK system, leaving them to start from scratch regardless of how financially responsible they may have been throughout their lives. Self-employed workers, gig economy participants, and those on zero-hours contracts face additional scrutiny because their income does not fit neatly into the salaried employment model that algorithms are calibrated to trust.
There is also a geographic dimension to the problem that often goes undiscussed. Communities with higher rates of social housing tenancy, areas with historically lower rates of homeownership, and regions that experienced significant economic decline during the deindustrialisation of the 1980s and 1990s all show elevated rates of financial exclusion. In many of these areas, access to affordable credit is not just a personal inconvenience, it is a structural issue that compounds existing disadvantage across generations. A family that cannot access affordable credit to repair a boiler, cover a gap between payslips, or fund a training course is a family that is systematically prevented from participating fully in the economy.
The Role of Alternative Lenders
Into this gap, a range of alternative lending providers has emerged with a fundamentally different approach to credit assessment. Rather than relying solely on traditional credit bureau data, many of these lenders use open banking, income verification tools, and broader behavioural data to build a more complete picture of an applicant’s financial situation. The logic is straightforward: someone who has consistently paid their rent on time for five years, manages their current account responsibly, and maintains stable employment is a very different risk proposition to what a thin credit file alone would suggest. This more nuanced approach has allowed providers offering loans for people with bad credit to extend credit responsibly to segments of the population that mainstream lenders have categorically refused to serve.
It would be a mistake, however, to suggest that alternative lending is a perfect solution or a substitute for systemic reform. The higher cost of capital associated with riskier lending pools, combined with the operational overhead of more complex underwriting processes, inevitably translates into higher APRs for borrowers. Responsible lenders mitigate this through robust affordability assessments and transparent pricing, but the fundamental economics mean that credit will always cost more for those who have been unable to build a conventional credit history. This is why many advocates argue that the real priority should be reforming the credit scoring infrastructure itself, including proposals to incorporate rental payment data into credit files, which could meaningfully improve scores for millions of renters overnight.
There has been some regulatory momentum in this direction. The Financial Conduct Authority has taken a more active interest in financial inclusion in recent years, and there are ongoing discussions about how open banking data could be more systematically incorporated into credit assessments across the industry. Some lenders have moved further and faster than others in adopting these approaches, and the differences in outcome for consumers can be substantial. A borrower who is declined by one lender may be approved by another using a more sophisticated model, which underscores how much the credit gap is a function of methodology as much as it is of actual financial risk.
The wider economic cost of financial exclusion is also increasingly hard to ignore. When people cannot access affordable credit, they do not simply stop having needs. They turn to higher-cost alternatives, draw down savings that might otherwise be invested, or go without necessities in ways that affect their health, productivity, and wellbeing. The cumulative effect on consumption, labour market participation, and public services is difficult to quantify precisely but is almost certainly substantial. For policymakers, lenders, and regulators alike, addressing the credit gap is not simply a matter of social justice, though it is unambiguously that. It is also a question of economic efficiency and long-term national prosperity. A financial system that excludes millions of creditworthy people from meaningful participation is one that is leaving a great deal of value on the table.