The report – ‘The Cost of a Poor Credit Rating’ commissioned by specialist credit card provider aqua – quantifies the direct cost of having a poor credit rating.
The research showed that poor credit households of middle income could have to pay anywhere between £1,089 and £1,225 more than good credit households.
This is because people with a poor credit rating are deemed risky and more likely to default on a payment. For this reason, companies, such as energy providers, run credit checks on people and, if their score is low, they charge them a higher tariff in case they default.
The report revealed families have been unnecessarily spending money by missing out on more competitive tariffs, adding hundreds to utility bills, mobile phone contracts, and credit cards.
Poor credit score households pay over the odds for mobile phone usage (£43 a year), broadband (£115), white good on finance (£321), gas and electricity (£138) and credit card costs (a staggering £1,397 a year).
But it is medium-term borrowing where a poor credit households are hit hardest. Borrowing £8,000 to buy a car would cost a person with good credit a total of £1,198 over five years in interest payments on the original loan amount.
However, for someone with a poor credit rating, this would cost £6,798 in interest payments on top of the £8,000. This is the equivalent of paying an extra £1,120 a year for five years to obtain the same car.
The report’s author, Dr John Glen, senior lecturer at Cranfield School of Management, said: “Simply put, having a poor credit rating is costing UK households billions of pounds each year.
“Last year, aqua’s Mind The Credit Gap report found 57% of people are ‘at risk’ of failing a credit check – this means they will struggle to access the best tariffs on things like gas and electricity bills.
“As a result, people with poor credit in the UK could be paying £3.5bn more than people with good credit for identical products and services.”