The number of customers with adverse credit is growing. It shouldn’t come as a surprise, given the ongoing cost-of-living crisis and rising rates have put a squeeze on household finances.

Rising monthly costs are driving more people to credit to make ends meet. The Money Charity says that at the end of May, outstanding consumer credit lending was £213.9bn, increasing by £809m for the previous month. Within this, outstanding credit card debt increased by nearly 8% to £66bn, and the average credit card debt averaged £2,350 per household.

At the same time, the cost of borrowing on credit has increased. Bank of England data shows that credit card interest rates hit their highest level in 27 years in June, rising to 23.1% from 21.43% compared to the same month in 2022.

When you then layer on other forms of credit, such as car finance, personal loans, and overdrafts; it’s clear that we’re living in an environment where missed credit payments are only going to become more commonplace.

This is reflected by sourcing data from IRESS, which shows that 28% of all enquiries in June had at least one element of adverse credit, a significant increase from July last year when it was just 21%.

In our own Specialist Lending Study, published in the winter, Pepper Money said the number of people considered to have adverse credit had grown to 7.91 million, up from 6.29 million the previous year.

So, what’s the best approach when working with a customer with adverse credit?

On occasion, high street lenders may accept a missed payment or two if a case fits within their overall credit score requirements. However, this isn’t always the case and submitting an application with adverse credit can often result in considerable delays whilst it is reviewed, which can then be followed by a decline. In a situation where a customer is trying to buy a property or complete a remortgage before they need to pay their lender’s SVR, this delay could prove very costly.

Research conducted by Pepper Money amongst more than 500 brokers earlier this year found that just over 41% value clear and concise criteria as an essential characteristic in identifying a preferred lender – and this is particularly true when working with customers who have adverse credit.

When you are sourcing the right mortgage for your customers with adverse credit, it can often be best to look beyond rate and speak to a specialist who can provide clear criteria and certainty from the outset, particularly when time is a critical consideration. Lenders who are not specialists in working with customers who have adverse credit will be more likely to decline an application, and often only once they have taken valuable time to review the case.

The number of customers with adverse credit is increasing, and by choosing to work with the right lender from the outset, you can meet the needs of this growing group, providing them with the certainty they need.

Paul Adams, Sales Director at Pepper Money