The two-speed consumer economy: Why stable customers are becoming a risk

Consumers in the UK are presenting a mixed picture of financial health that most risk models would miss. Let’s let that sink in.

Now, according to TransUnion research, about two-thirds of people describe themselves as financially comfortable, yet roughly one-third report pressure on their finances. Some people are managing. Others aren’t.

Meanwhile, credit card balances have climbed sharply. Outstanding UK credit card debt passed £70 billion in 2025, reflecting greater reliance on unsecured borrowing.

Behind these headline figures, demand for support is rising. In January 2025, debt advice services such as StepChange reported a record number of clients seeking help with problem debt, the majority of whom cited credit card borrowing as a key factor.

This data shows us that the UK is operating as a two-speed consumer economy. One group appears stable and resilient. The other is under sustained pressure. The problem? Traditional credit data struggles to tell the difference until it’s too late. Those customers that you think are fine? They probably aren’t.

So, why are our current indicators failing to surface this earlier?

Key takeaways from this article: Financial strain often develops before it shows up in credit files. Bureau data confirms deterioration after the fact; it rarely signals early pressure. Risk isn’t confined to distressed segments. It sits inside the performing book, particularly among customers with reduced margins rather than missed payments. Rising credit card balances and record debt advice volumes suggest reliance on unsecured credit is increasing, even among those who still appear stable. Behavioural signals like essential borrowing, income variability and fragmented short-term credit use often precede arrears by weeks or months. Waiting for score movement delays intervention. Earlier visibility reduces losses and regulatory exposure under Consumer Duty. The competitive advantage lies in understanding what happens before the bureau changes.

Why traditional credit scores miss the split

Credit scores were built to assess repayment behaviour and long-term creditworthiness. They do that well. But they weren’t designed to surface emerging financial strain in real time.

Now, here’s the problem: When one-third of the population reports financial pressure, visibility that arrives only after repayment performance has deteriorated isn’t sufficient. And that lag exposes Consumer Duty weaknesses and it costs money.

Unfortunately, these weaknesses are already embedded in firms:

1. Lagging indicators: Bureau data confirms outcomes. It records missed payments, defaults and formal arrangements. It doesn’t capture the tightening that precedes them.
2. Income compression: Reduced hours, contract variability or less predictable gig income can erode household margin long before a scheduled payment is missed.
3. Behavioural changes: A move from discretionary to essential spend. Applications for smaller, short-term credit to manage cash flow. Increased utilisation on revolving lines. None of these automatically alter a score at the point they occur.
4. Repeat micro-borrowing: Liquidity gaps are often managed across multiple providers. Fragmented borrowing can bypass single-lender visibility, particularly where affordability checks sit in isolation.

 

Individually, these signals may not trigger intervention. But collectively, they indicate mounting pressure. By the time a score adjusts, stress may have been present for weeks or months. Portfolios can appear stable until roll rates begin to move.

Ultimately, firms need to know what happens before the bureau changes and whether that early movement is visible in time to respond proportionately.

↪Further reading: Beyond the credit file: Detect vulnerability before it becomes harm

Why financial comfort doesn’t equal financial resilience

Headline comfort figures can reassure too quickly.

What customers say about their finances is not the same as what they can withstand. That difference is easy to miss when repayment performance remains steady.

Costs remain elevated. Savings buffers are thin for many households. Across parts of the performing book, there is limited room for additional shock.

Repayment performance can remain intact even as financial margin narrows.

Customers often prioritise protecting their credit standing. Scheduled payments are met. Discretionary spend is reduced. Liquidity gaps are managed quietly, sometimes through short-term borrowing elsewhere. From a conventional risk view, little appears to have changed.

But capacity has.

When financial headroom compresses, the next adverse event does not need to be significant to trigger deterioration. A rise in essential costs. A short-term drop in income. An unexpected expense. The buffer is already thinner.

This brings me to my next point: the advantage lies in recognising reduced resilience before it shows up in arrears data, while engagement is still constructive and options remain open. Here’s how…

Spotting pre-arrears risk before file updates

Early financial strain is rarely invisible. It simply sits outside traditional credit reporting.

But it doesn’t need to stay hidden. Alternative data sources, like Know Your Vulnerable Customer (KYVC), makes that strain detectable before consumers struggle with repayments.

Here are just a handful of flags that KYVC uses:

Category	What you see	What it means commercially
Income instability	Move from permanent to temporary work Declared reduced hours Self-employment volatility	Reduced income predictability and weaker shock tolerance
Low financial resilience	Application for emergency expense Short-term or high-cost borrowing Declared reduced income	Limited savings buffer and tightening liquidity
Rising repayment burden	Application to repay existing debts Formal debt solution activity	Existing commitments becoming difficult to sustain
Negative life event	Bereavement, separation, unemployment, retirement	Structural change to household income or expenditure
Concentrated income source	Reliance on fixed benefits or pension income	Limited flexibility if essential costs rise further

None of these vulnerability signals, on there own, will necessarily alter a credit score. But when financial strain indicators, life events and borrowing behaviour appear within proximity, they form a coherent picture of reduced resilience and enable you to act sooner.

How early detection reduces arrears and protects portfolio value

Consumer Duty has raised expectations around foreseeable harm. But the business case stands on its own.

When detection moves forward, engagement moves forward.

Earlier awareness allows firms to:

• Engage customers before balances escalate

• Offer proportionate support while options remain open

• Reduce roll rates into arrears

• Improve recovery outcomes

• Protect lifetime value in sectors like telecoms and utilities

 

In a two-speed economy, risk does not rise evenly across the book. It builds before arrears begin. The firms that reduce losses most effectively will not be those reacting fastest to missed payments. They will be those spotting early signs of strain in customers who still look stable.

The real exposure in the performing book

Debt advice volumes remain elevated. Revolving credit balances continue to rise. You can see the implication. Pressure is not isolated to a narrow segment of already distressed customers.

But it’s not enough, and we need to do more than rely on periodic portfolio reviews.

Risk strategy needs to move:

From static snapshots to continuous monitoring
From confirmed events to behavioural evidence
From segment averages to individual trajectory scoring

The most visible risk sits in accounts already in arrears. That’s obvious. The less visible, and often more material, exposure sits elsewhere. It sits with customers who remain current and well scored, yet whose income stability, borrowing behaviour or household circumstances are tightening.

These accounts continue to perform. For a time.

So, ask yourself: Is your performing book as stable as it appears? When one-third of consumers report financial strain, some of today’s low-risk accounts are already operating with reduced margin.

If vulnerability frameworks, portfolio monitoring or Consumer Duty assurance are under review, now is the time to test whether your monitoring detects emerging strain or simply confirms it once it has become visible.

And if the goal is earlier, more structured visibility into reduced resilience, Know Your Vulnerable Customer (KYVC) provides a way to surface those signals before arrears occur. Learn more about KYVC.