The real financial impact of a low credit rating

Posted by Michael Bolt in Credit Check on 4 March 2014 - Michael worked as a Credit Analyst at checkmyfile until 2015

An average middle income family with a poor credit rating could be paying up to £1,225 a year more on financial products than a family with an excellent credit history, a recent has found.

The report, 'The Cost of a Poor Credit Rating', commissioned by the credit card provider Aqua, attempts to quantify the financial cost of having a good credit rating compared to a poor one, revealing some shocking results.

Aqua's report, authored by Dr John Glen, a senior lecturer at Cranfield Business School, finds that many families have been unnecessarily spending money by missing out on better tariffs and deals because of their credit rating - adding hundreds of pounds to the cost of utility bills, mobile phone contracts and credit cards.

The study found that poor credit households of middle income – defined as having an annual after tax income of between £19,240 per annum and £25,480 per annum – could have to pay anywhere between £1,089 and £1,225 more on finance, than those with healthy credit scores. Those families with more occupants were also found to be hardest hit by the impact of a poor credit rating.

A range of goods and services were analysed during the course of the study including mobile phones, energy, car finance, credit cards, white goods and broadband.

The financial cost of having a good or a bad credit rating was most prominent when it came to car finance. The study found that an £8,000 car bought on finance would cost someone with a poor credit rating £6,798 extra in interest payments, while it would cost someone with a good credit rating £1,198 in interest in addition to the cost of the car.

The financial impact of a poor credit rating is also felt across everyday bills such as broadband, utilities, mobile phones and the cost of white goods. The study found that families with lower credit ratings can typically only access rolling monthly broadband contracts for example, meaning that they could face an annual bill of £174.48 for an average broadband package to avoid being credit checked. This compares with £59.88 for those with a good score.

The impact of a poor credit rating was also felt when it came to energy tariffs, with customers with a poor credit rating often only able to access more expensive pay-as-you-go tariffs, costing an additional £110 each year than cheaper 'fixed price' tariffs. The report also finds that families with a mixed credit history could pay an extra £1,500 a year on credit card interest and an additional £320 on white goods purchased on finance.

Dr Glen says,"Simply put, poor credit is costing households in the UK billions. It's alarming that often the people who need the most help are the ones who are charged more for everyday household products and services."

The findings of the report lay bare the financial impact a poor credit score can have and reiterate the importance of trying to improve and regularly checking your credit report.

What Landlords, Employers and Lenders See on Your Credit Report

Your credit report is likely to be viewed many times during your life - often at key moments. While you might expect this when you’re about to apply for a mortgage or a car loan, it may also be checked by a prospective landlord or employer, and just like lenders, there are some key pieces of information they’re looking for that can make or break your job application or property rental.

Published on 29 Jan 2018 by Sam Griffin

Full Article

How lenders can change your interest rate even after an account has been opened

Most people are aware that your credit report and rating have a heavy bearing on whether a lender accepts or declines an application, and the rate of interest that comes with the account. However, not everyone knows that credit scoring – in the form of a particular lenders’ appetite for ‘risk’ - can continue to have an impact on your account even after it has been opened.

Published on 24 Jan 2018 by Kiah Phillips

Full Article

6 Things Lenders Don’t Want to See on Your Credit File

We live in a time where credit ratings have an ever-increasing impact on our lives. Mortgages, loans, car finance, phone contracts… almost anything that involves a degree of borrowing is likely to involve your credit report, or rather, the information it contains. A lot of information goes under the microscope during an application and unless you know exactly what you’re looking at, you may not realise which elements could be hurting your rating the most.

Published on 5 Jan 2018 by Beth Jennings

Full Article

No credit is good credit. Think again

Picture this scenario. You go into a mobile phone shop to get the latest release on a contract. At £30 a month, it is well within your affordability, without pushing your monthly income too much. All in hand, you may think.

Published on 4 Apr 2016 by Ben Tumilty

Full Article

How to go all 007 and get yourself an Aston Martin

Spectre, the 24th Bond film, is released in November and is sure to feature a string of vehicles that will have cinema goers gazing longingly.

Published on 17 Sep 2015 by Richard Catlin

Full Article

When information on your credit report is wrong

One of the main benefits of keeping track of your credit file is that you are able to monitor how your accounts are being reported to future lenders. Whether the account information is correct or not, lenders are increasingly relying solely on computers to interpret your credit file and when there is incorrect information, consumers face the potential of being declined for everyone’s least favourite reason – computer says ‘no’.

Published on 17 Nov 2014 by George Coburn

Full Article

Child Maintenance to be reported on credit report

New Government plans will see those parents who default on child maintenance payments being reported to the credit agencies. This in turn could lead to non-payers being refused for credit such as mortgages, credit cards or even bank accounts.

Published on 10 Nov 2014 by Neil Greenhill

Full Article

Landlords to be registered on central database

Every private landlord in England will be required to register on an official Government database in an effort to offer tenants better protection.

Published on 18 May 2009 by Richard Catlin

Full Article

Employment related credit checks on the up

Finding a new job is the priority for anyone out of work right now. But for people looking to step into certain jobs, and in particular for those working with money or in the financial sector, a clean credit report is absolutely essential.

Published on 19 Feb 2009 by Barry Stamp

Full Article

Barack Obama iPhone application rejected

As the most powerful man in the world, that’s not a headline you’d expect to read and really, there’s little doubt that America’s new president would be able to secure a new mobile phone contract if he needed one.

Published on 12 Feb 2009 by Richard Catlin

Full Article


We have loads of great customer reviews