Poor credit rating costs families more

Families with poor credit ratings purchase more household expenses on finance.

This is according to credit card provider Aqua, which has released its latest study. It showed that those on middle-incomes could be paying up to £1,225 per year more on financial products than those with a better history.

Meanwhile, a low score can also mean households who are already perhaps struggling with debt repayments are also having to face higher premiums than their counterparts with higher ratings. The study showed that families with a chequered past could be paying up between £1,089 and £1,225 more on items such as mobile phone contracts.

Research found that for some people, a car loan of £8,000 could cost those with a poor credit history as much as £6,798 in interest payments, instead of £1,198 for somebody who has an excellent score. Additionally, they may pay an extra £1,500 per year on credit card interest, £150 on energy bills and £115 on broadband.

This is because families at the lower end of the spectrum can only access month-to-month contracts so as to avoid having their score checked. This can result in them being charged an average of £174.84 for the service, instead of £59.88 which is payable by those with a better history.

On top of this, the study revealed 57 per cent of adults in the UK are running the risk of being declined for credit as a result of their low rating. It also stated that the amount of additional money spent as a result of a low score is the equivalent of an average family's annual gas and electricity bill.

Report author Dr John Glen commented: "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."

Aqua's study compared a list of financial products and how much they would cost for families with a low credit score compared with those with a better history. It was compiled in conjunction with the Cranford Business School.

By James Francis