BLOG: The importance of having a healthy credit score
It’s been widely accepted that there is currently a cost of living crisis. Six years on from the recession, many families across the UK still have to tighten their belts to make ends meet. Incomes are continually being squeezed and salaries are struggling to keep up with inflation, driving more and more people to borrowing.
The trouble is, many people still don’t realise that borrowing can cost considerably more if you have a low credit score and this applies to basic day to day purchases and household bills, not just loans from banks as most assume.
This lack of awareness seems all the more important when you know that more than half of people in the UK are at risk of being declined for credit by mainstream lenders.
So in February this year we decided to find out just how much having a lower credit score costs average families who are currently doing everything they can to cut costs. We commissioned The Cost of a Poor Credit Rating report with Dr John Glen, senior lecturer at Cranfield Business School.
Through research we found that families with poor credit ratings are losing hard-earned cash by missing out on the best tariffs, and this adds hundreds to the cost of their household bills and services. We know now that the average family with a low credit rating spends an extra £1,170 each year on goods and services such as mobile phone contracts, utility bills, broadband, credit cards, white goods and cars purchased on finance.
Two-parent families with children saw their fortunes dented the most, suffering an average annual additional cost of £1,225, with single parent families also badly affected, shelling out £1,170 extra per year.
We also found that broadband contracts are one of the worst offenders, with some families forking out more than £110 extra per year for an average broadband package, while a car purchased on finance could cost someone with a poor credit rating more than £5,000 extra in interest payments.
We also know that some of the families that need the most help are at risk of losing the equivalent of 10 weeks’ childcare costs as the result of poor credit ratings (based on average childcare costs amounting to £109 per week).
Thankfully, the government has gone a long way to help these families, especially with the promise of extra support for childcare cost in the recent Budget but the issue of looking after a credit score rests solely on the individual.
That’s why it’s that vital people understand how important it is to have a healthy credit rating, as it could make a lot of difference, especially to those on a shoestring budget. The good news is there are simple things that people can do to boost their credit rating and avoid paying more. Here are our top five tips:
1. Make sure you’re on the electoral roll
2. Pay all your bills on time, even a couple of days late can make a difference
3. Ensure there’s no incorrect details on your credit record
4. Try not to use more than 75% of your available credit limit
5. Do not take out more than 2 forms of credit within a 6 month period