The increasing cost of living might be negatively impacting your credit score, as even one missed payment can have lasting consequences. According to research from the credit score app CredAbility, 24% of adults in the UK – or 12.2 million individuals – have missed at least one payment in the past year.
Starting in April, the energy price cap will rise to an average of £1,849 annually, and many households are also facing increases in water, broadband, car tax, and other expenses. With numerous individuals already finding it challenging to manage their bills, experts caution that some may jeopardise their financial future.
Aaron Peake, a Personal Finance Expert at CredAbility, emphasised: “Missing just one payment can decrease your credit score, leading to higher borrowing costs and making it more difficult to secure credit in the future.” This can significantly impact the offers available for credit cards, mortgages, and loans, or even be denied altogether.
The expert specifically advised those struggling with their bills next month to avoid “riskier, unregulated credit options,” such as payday loans and Buy Now, Pay Later schemes. A lower credit score typically results in higher interest rates.
Experts pointed out that borrowers with a poor credit score could end up paying an additional £256,630 over their lifetime, further exacerbating their cost of living challenges when trying to make ends meet. But you may be able to future-proof your credit score against this, as the experts detailed four steps to follow next month:
- Don’t cancel direct debits
- Explore financial support
- Check for mistakes on your credit report
- Seek free debt advice
If you’re considering cutting essential direct debits to manage your finances, reach out to your service providers to discuss repayment plans instead of cancelling those payments altogether. Assistance is available for qualifying households through various suppliers, including energy companies, local councils, and government programs.
It’s a good idea to check your current credit score and look for any issues in your credit report that could easily improve it. Common errors include incorrect credit limits on your cards, closed accounts still marked as open, or inaccurate information, such as debts mistakenly attributed to someone with a similar name.
There are several ways to enhance your credit score without spending any money, such as registering on the electoral roll at your current address. Additionally, applying for too many credit products in a short time can negatively impact your score, so it’s wise to use an eligibility checker before submitting applications.
Websites like CredAbility and ClearScore let you review your credit score and report. If you can’t find any clear ways to improve your credit score or safeguard your finances against rising living costs, numerous free resources are available to assist you, including Citizens Advice, the National Debtline and StepChange.