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Lower credit scores cost households more

The average family with a low credit rating spends an extra £1,170 each year purchasing household expenditures on finance, according to a new credit ratings report.

Specialist credit card provider aqua commissioned the report ‘The Cost of a Poor Credit Rating,’ which quantifies the direct cost of having a poor credit rating.

The report revealed that families have been unnecessarily spending money by missing out on better tariffs, adding hundreds to utility bills, mobile phone contracts, and credit cards.

Dr John Glen, senior lecturer at Cranfield Business School and author of the report, said: “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.

“And it’s not just a small number of people, previous research commissioned by aqua has found that 57% of adults in the UK are ‘at risk’ of being declined credit, as a result of a low credit score.”

Aqua had previously found that more than half of the UK adult population are at risk of being declined credit by mainstream lenders.
Research uncovered that households with poor credit scores can pay between £1,089 and £1,225 more than those with healthy credit scores.

James Corcoran, chief executive of aqua card issuer Progressive Credit, added: “We commissioned this research as we believe in the importance of helping people be better with money, and so be better off.

“Following on from the ‘Mind the Credit Gap’ report, our latest research shows that having a poor credit rating really does matter – it costs you money. The amount wasted every single year by having a poor credit rating is significant in terms of people’s disposable income and is the equivalent of an average family’s annual gas and electricity bill.

“The irony is that the people who need their money to go further are the ones who end up paying more.”

Generally, families with lower credit scores can only access month by month contracts, resulting in annual charges of £174.84 for an average broadband broadcast package to avoid having their credit checked.

Conversely, families with good credit scores pay £59.88.

Similarly, purchasing an £8,000 car on finance would cost someone with a poor credit rating £6,798 in interest payments, compared to an average of £1,198 for someone with a good score.

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