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How Expensive Is A Poor Credit Rating?

24th February 2014

Aqua, a credit card provider, has produced a report into the cost of having a poor credit rating. You might expect that purchases made on credit would cost you more. Did you know that essential services such as gas, electricity and broadband might also be more expensive?

This subject is relevant to anyone that has completed a trust deed in Scotland. Without taking positive action, many people will find that their credit rating takes a very long time to recover. It’s not just about restricted borrowing access; you might pay more to run your household in many other ways.

This research focusses upon the costs experienced by middle-income families. These are defined as having a pre-tax income of between £24500 and £33800. It’s calculated that a family with a poor credit record might pay out an average of £1170 extra every year (compared to a similar family with a good credit rating).

Buying white goods on finance is one example. The average costs rise to £906 (from £585) where a credit rating is poor. Buying a car on finance presents an even more dramatic example; £2960 per annum compared to £1840.

People might be more surprised to learn that the best deals on other services might not be offered to those with a poor credit history. Poor credit might increase the cost of an annual broadband contract from £60 to £175. Poor credit might also stop you from accessing the best fixed tariff gas and electricity deals and therefore result in extra annual spending of £138. Mobile phone costs could increase by £42 per year.   

It’s well understood that families with children are comparatively more exposed to debt and other financial problems. This report further confirms this pattern. A family comprised of two adults and two children with a poor credit rating might typically experience extra annual costs of £1226, compared to £1090 of extra costs for a single adult household.

The reality is that your credit rating in the aftermath of a Scottish trust deed will be poor. Trust deeds remain on your credit file for a period of six years (from when they started) which will continue to have some effect. You do however have opportunities to improve the situation before the end of this six year period. You could perhaps help to reduce your household costs in the process.

One step is to review your credit file a couple of months after you have been discharged from a protected trust deed. Have default notices been placed on your file after your trust deed began? Have the companies that you owe money to amended your file to show that you no longer owe them money?

Another step is to make some use of credit again. A credit card might be helpful for this purpose. To avoid extra interest costs it’s important to make only limited use of the card and to repay the balance in full and on time. Aqua is one of the cards we suggest might be used for this purpose. Many of our forum visitors have reportedly used the Vanquis card for the same purpose.   

It is regrettable that people continue to pay a financial penalty for previous debt problems. Once you’ve been discharged from a protected trust deed, taking proactive steps to work on your credit status might result in the scale of this penalty reducing relatively quickly. 

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