A poor credit score ups bills by £1,300
Households with poor credit scores pay £1,300 a year more for utility bills and loans than families with higher scores, according to new research.
They could be paying £1,170 more a year for bills including mobile phone, and loan repayments for white goods and cars and £138 more for gas, electricity and water, the research by Cranfield Business School for Aqua credit cards has found.
The credit card provider also found that more than 80% of people don't realise a low credit rating could result in bigger bills and 57% of UK adults are at risk of being declined credit by mainstream lenders.
Mario Lupori from Aqua explained: "UK families are paying £327 million a year extra on their energy bills as the result of poor credit ratings. This means the average family with a poor credit rating could be spending 12% more than the average family with a good credit score."
He added: "The good news is there are lots of manageable steps people can take to improve their credit rating, such as registering on the electoral roll, paying bills on time or simply correcting mistakes on their credit report."
Other tips from Aqua include:
- Avoid keeping a high balance on your credit card. Lenders may view it as excessive debt and be concerned about your ability to repay.
- Don't apply for credit too often - applying for more than four forms of credit in a year can lower your credit score.
- Only apply for credit with one provider at a time - multiple applications for can have a negative impact on a credit record.
- Close old credit cards and agreements, such as store cards you never use, as they will still appear on your file. Lenders may be wary about the potential size of your debt.
- Cut all financial ties to your exes - if you are divorced or separated, make sure your former partner's details are removed from any joint accounts. The credit history of all financial associations such as a spouse or anyone else you have a joint bank account or loan with can affect your credit rating.
Your credit score is a three-digit number (ranging from a low of 300 to a high of 850) calculated from the information in your credit report. Your credit score enables lenders to determine how much of a credit risk you are. Basically, a low credit score indicates you present a higher risk of defaulting on your debt obligations than someone with a high score. If you have a low credit score, any products you successfully apply for will carry a higher rate of interest commensurate with this risk.
A report containing detailed information on a person’s credit history, a record of an individual’s (or company’s) past borrowing and repaying, including information about late payments and bankruptcy. It also includes all applications a person has made for financial products and whether they were rejected or accepted. Your credit report can be obtained by prospective lenders to determine your creditworthiness.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.