Poor credit scores pay more interest on credit cards

Having a poor credit rating could be costing you – more interest, that is.

New research from TotallyMoney has found that those with a poor credit score could be paying £872 more per year in interest – or £73 a month – compared to someone with a good credit rating.

Stretched finances

Our finances continue to be stretched by the cost-of-living crisis, so it’s little wonder we’re relying on our credit cards more frequently – outstanding balances grew by 7.7% in the last 12 months to £33bn.

Half (49.2%) of those who have a credit card pay interest every month and the rate is likely influenced by the information in your credit report.

The research also found that one in 10 (11%) have missed payments in the last six months.

'A flawed system'

TotallyMoney says 23 million adults will struggle to access mainstream financial products and services, including credit cards and loans — an increase of 3.14 million (15.5%) in just two years.

CEO Alastair Douglas says: “Unfortunately, the current system is flawed, and those in the worst situations are likely to be paying the highest rates of interest, further adding to their financial problems.”

He also recommends keeping an eye out for banks who lend using open banking data.

Improving your credit score

With banks offering fewer credit cards than ever before and being more cautious to lend, it can be harder to borrow money.

A higher credit score usually means you’ll be offered better deals, such as cards with the longest 0% offers and lower interest rates.

Those with poor scores generally won’t be offered as many deals, or they’ll have higher interest rates or shorter offer durations.

Follow the tips in our guide to improve your credit score.

Paying too much interest?

If you’re paying too much interest on your credit card, it’s worth seeing if you can get a balance transfer card.

This lets you pay off your existing credit card with a new one, which usually has an interest-free period.

You can also consolidate your debts into one payment if you have more than one credit card that you’re paying interest on.

Combining your debts – either with a balance transfer card or a loan – to one lender means you’ll only have one interest rate.

And because you can take a loan out over a longer period, the monthly repayment late tends to be lower than what you were paying to each of your credit card providers.

If you’re struggling to pay off your credit cards because of high interest rates, it might be time to seek free debt advice either online or over the phone on 0161 518 8285.