Student loans warp graduate credit scores

The government's decision not to share student loan data with other lenders means hundreds of thousands of graduates could have credit scores that are incorrect.

And this means that some young workers are being offered more credit than they can afford, while others unnecessarily miss out, credit reference agency Callcredit points out.

"The government has been putting a lot of pressure on lenders to know their customer better and make more responsible lending decisions," said Mel Mitchley, Callcredit industry affairs director.

"But there are 2.8 million people in the UK who are currently under the credit radar because of its [the government's] decision not to share student loan information.

"To many people it’s a no-brainer, the information should be shared as it would help people who have a responsible attitude to their student debt and prevent those who are already in difficulty being granted further credit. We need to have further debate on the matter."

Currently, commercial lenders share data about people's level of debt and their repayment history - letting banks decide whether to offer more credit to a customer or not.

This, along with information on bankruptcies, county court judgements, and data on the public record is used to create a credit score that tells lenders how good people are at paying back loans and how in debt they are currently.

But student loans are not included in this, and having a student loan has a significant impact on credit-worthiness.

Firstly, it reduces the amount of money people have - effectively reducing their declared salary.

Secondly, someone having difficulty meeting the old-style mortgage loans could be given more credit, because their student loan repayment history is included in the credit score.

On the flip-side, a graduate with a perfect repayment record could be turned down for credit as they do not have a credit history.

And the call for student loan information to be made public is coming from within the system as well as from commercial lenders.

Student Loan Company chief executive Ralph Seymour-Jackson wrote to the Department for Education and Skills last year asking to be allowed to share its information.

However, the department currently has no plans to change the situation, Callcredit says.