It’s well documented that on average, women generally earn less than men. But did you know that women also typically pay more total interest than men when borrowing? New research from credit management platform Credit Karma has revealed a gender credit gap with women paying thousands of pounds more to borrow over their lifetime.
What is the gender credit gap and how big is it?
According to Credit Karma, women could end up paying close to £17,000 more than men over their lifetime when they borrow money.
Credit Karma found that women have lower credit scores on average than men (652 vs 705).
In addition, a larger percentage of women (19.5%) have a credit score below 550 than men (11.5%). Basically, women are more likely to fall into the subprime category for lenders, which makes accessing financial products more difficult and expensive for them.
Credit Karma worked out how much interest consumers would need to pay on financial products like mortgages and credits based on their credit scores and discovered that women would have to pay £152,403 while men would have to pay £135,490.
That’s a difference of 16,913!
Why do women have lower credit scores?
Credit Karma says that the difference in credit scores between men and women is primarily driven by women’s more conservative financial behaviour, relationship dynamics on who sorts the bills and borrowing preferences.
In regards to relationship dynamics, for example, nearly a third (31%) of women have some or all of their financial agreements in their partner’s name.
The ultimate result of this is that it limits women’s exposure to credit. It leaves them with little or no credit rating should the relationship end.
The research also suggests that women are less likely to access financial products that would positively impact their credit score, including personal loans and mortgages.
Instead, they are more likely to turn to unregulated forms of borrowing such as buy now, pay later that often have no positive credit score impact.
What’s perhaps even more concerning is that the pandemic could make things worse for women. More women than men have been laid off or furloughed during the pandemic (20% vs 14%).
In addition, more women than men have seen their income diminish over the last 12 months (32% vs 30%).
How can we solve the gender credit gap?
Credit Karma encourages women to take a more hands-on approach to managing money. This comes after it was discovered that more women (41%) than men (35%) do not know their credit score.
Knowing your credit score allows you to create a plan for improving it. This can lower your borrowing costs in the long run.
Here are a few useful tips for improving your credit score:
- Pay your bills on time, including utilities. This will help you avoid late charges and fees being reported to credit bureaus. Remember that even one late payment can bring down your credit score as it stays on your report for years.
- Ensure you have some bills or lines of credit in your name (not your partner’s or your parents’ names). Without sources of credit, lenders don’t have any way of assessing your creditworthiness.
- Check your credit score and credit report regularly and dispute inaccuracies. You are entitled to a free annual credit report from each of the three major credit reference agencies in the UK (Experian, TransUnion and Equifax).
- Get on the electoral register. This proves who you are as well as where you live. It might be easier to get approval for credit if you are on the register.
- Ensure that you are at least using some credit every month and paying it off. This can help show that you are a responsible money manager and improve your standing with lenders.
For more, check out our guide on how to improve your credit score.
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