Personal finance website TotallyMoney found that for the average balance of £2,906, somebody with a poor credit score could pay an extra £872 per year in interest compared to somebody with a good credit score.
Half of credit card customers pay interest on a combined £33bn of borrowing every month, according to TotallyMoney, and the interest rate they pay is likely to be influenced by the information in their credit report.
People with better credit scores will be more likely to have access to the best cards with the longest 0% offers, and lower follow-on interest rates. Those with poor scores will likely be eligible for fewer products, with shorter offer durations, and higher interest rates.
Somebody with a poor score could pay £1,595 in interest each year on an APR of 54.9% on the average balance of £2,906, while somebody with a good credit score might be paying £723 in interest on an APR of 24.9%.
According to the FCA‘s Financial Lives survey for 2024, in the past 12 months, total credit card balances have grown by 7.7% to £33bn, and one in two people are paying interest on their borrowing. One in 10 (11%) have missed payments for credit commitments or domestic bills in the past six months.
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Meanwhile, the number of banks offering credit cards has now dropped to its lowest count on record. In some circumstances, the products that are available are now often harder to obtain, as lenders are acting with greater caution when assessing who can borrow.
Alastair Douglas, CEO of TotallyMoney, said: “One in two adults are at risk of paying almost £900 more in credit card interest every year. For some, this might simply be because of an error on their credit report – which can be fixed with what’s known as a ‘notice of correction’.
“This scenario could be even more likely if you’re one of the four in 10 adults who’ve never checked their credit score. For others, a poor credit score could be due to missed payments or having used too much available credit in recent years.
“Just getting on the electoral roll, fixing something [that] is wrong, or sending the right signals to banks can all help to increase your score. And improving how you look to lenders is essential to accessing the best offers, which in the long run can save you money and help you build a better financial future.”
Andrew Hagger, personal finance expert from Moneycomms.co.uk, said: “The ongoing cost-of-living squeeze means that some consumers will be unable to keep on top of borrowing costs, leading to late or missed payments on their financial commitments.
“As a result, credit records will be tainted and will lead to much higher interest rates if customers look for personal loans or credit cards in the future.
“The cost of having a poor credit record will hit home when people realise that they’re no longer eligible for best buy card offers and suddenly face credit card rates of 40% APR-plus if they apply for new plastic.”
