Calculated: the true cost of a poor credit score

By TotallyMoney
Sep 11th 2019

Latest research from TotallyMoney and Moneycomms highlights the true cost of a bad credit score.

People may not be aware that their high interest fees are because of a low credit score and bad credit rating, causing them to miss out on better offers that could save them money.


Here are some of the fees people could face if they have a bad credit score:
• Paying a £3,000 credit card bill over two years could cost £1,979 more in interest*
• A personal loan of £7,500 over four years could cost an extra £7,453
• A £207,000 90% loan-to-value (LTV) mortgage could cost an extra £14,857 over the first five years, or £78,500 extra over a 25-year term§


Borrowers with a lower credit score are charged higher interest rates because they’re seen as a greater risk by a bank or lender.
However, few people realise just how much of an impact this can have. The figures reveal enormous losses to customers who are unaware of the impact their credit score has on a lender’s decision.
Reviewing a credit report is the first step customers can take to improve their score. Once people know where they stand, they can take the necessary steps to increase their score and have a better credit profile.
With an improved credit rating and score, customers can get better deals on all types of credit. This means more interest-free offers, lower APRs, and greater choice. With this, customers can get a mobile phone contract, or spread the cost of big items over a number of months, such as furniture or a new car.


Alastair Douglas, CEO of credit experts TotallyMoney, said: “The extra fees people pay for having a bad credit score are huge. Taking the time to check their report means they can understand why this might be happening.

“Lenders review a customer’s credit report when they apply for a product. With a bad score, they’re more likely to charge a higher APR, offer less interest-free months, or even reject an application.

“Being informed about their score can help people to see where to improve and how to get the best deals. A report shows customers up to six years of credit history, and how much credit they are currently using.

“At TotallyMoney, we’re on a mission to improve the UK’s credit score. Checking a report is the first step of this process and can help people to understand their score. With this, they can get better rates and more choice — helping them work towards a better financial future.”


Common misconceptions about credit reports and scores

In TotallyMoney’s annual financial awareness survey 2019, they discovered some common misconceptions people have around their report and score.
1. Checking your credit report will impact your score
Nearly a quarter (23%) think checking their credit report will harm their credit score. This isn’t true. A free credit report from TotallyMoney won’t affect your score or rating, so customers can check it regularly without any harm.

2. You have a universal credit score
The majority of people (69%) believe they have a universal credit score. In fact, all customers have more than one credit score. The score varies depending on the credit reference agency that provides the report.
There are three credit reference agencies: TransUnion, Experian and Equifax. Each one has a different scoring system.

3. Savings improve a credit rating and score
Over a fifth (22%) believe that having savings improves their credit score. Savings aren’t a type of credit. So, they won’t appear on a credit report or affect your score.

4. Earnings affect a credit score
Over half (59%) think their earnings affected their credit score. How much you earn has no impact on a score. It’s about how well you manage your credit.

5. Being paid monthly has a positive impact
More than one in four (27%) think being paid monthly has a positive impact on their score. When you’re paid, and how much you earn, doesn’t influence your credit rating.

Over a quarter (26%) admitted their knowledge of credit reports was poor, showing more needs to be done to help inform people.


Calculations:
*Credit Card scenario - Comparing 0% purchase credit cards for someone with an excellent credit rating against a Vanquis Credit Card charging 69.9% APR on a sub-prime credit card for borrowers with a poor credit rating.

Personal Loan scenario - Comparing someone with an A1 credit rating borrowing at 2.9% APR with a best buy personal loan of £7,500 from Admiral, John Lewis P F or M&S Bank – total interest £446.40 over 48 months. Compared with a Guarantor Loan from Amigo charging 49.9% APR – total interest £7899.36 over 48 months.

§Mortgage scenarios - Comparing best buy HSBC mortgage at 2.29% fixed for 5 years with £999 fee at £906.90 per month against Aldermore non-prime mortgage at 4.68% fixed for 5 years with no fee at £1172 per month.
Over 5 years HSBC total = £55,413 and Aldermore = £70,320 = £14,907 extra cost if you have a bad credit rating
Over 25 years HSBC total = £273,069 and Aldermore = £351,600 = £78,531 extra cost if you have a bad credit rating
Based on a 90% Mortgage of £207,000 – property value £230,000 – matching the HM Land registry average UK property value May 2019.


Research and workings by Moneycomms.co.uk 22.07.2019
A nationally representative sample of 2,000 UK adults, commissioned by TotallyMoney and conducted by OnePoll.


For more information, please contact James McCaffrey

About TotallyMoney

  • Free credit report providers and credit experts, TotallyMoney, are on a mission to improve the UK’s credit score and help people move on up to a better future.
  • TotallyMoney launched its free credit report in late 2017, and today has over two and a half million customers.
  • TotallyMoney is the highest rated free credit report provider on Trustpilot. They are also 2018 and 2019 winners of Best Free Credit Report Provider at Moneynet’s Personal Finance Awards, showing recognition from both its customers, as well as within the wider industry.
  • TotallyMoney is backed by Scottish Equity Partners (SEP) and Elliott Advisors (UK) Limited, following a £29 million investment announced in December 2018.
  • TotallyMoney is also a Sunday Times Best Company as well as a UK’s Best Workplace 2019.