People with poor credit scores paying more in interest

The average credit card holder could face much higher interest charges if they have a low credit rating.

According to TotallyMoney, having a poor credit score could lead to you paying £73 a month - or £872 a year - more than people with a good rating.

Factors such as rising food and energy costs have led to more and more adults relying on credit in the last few years.

In fact, total credit card balances have gone up by 7.7% to £33 billion in the last 12 months alone.

However, half of those people who use credit cards are currently paying interest on their borrowing each month.

As a result, TotallyMoney CEO Alastair Douglas is concerned that “those in the worst situations are likely to be paying the highest rates of interest, further adding to their financial problems”.

A person can find themselves with a poor credit score for many reasons, such as missing payments and using too much credit.

There’s also the possibility that there might be a mistake on a credit report, in which case a person can submit a notice of correction.

However, figures from TotallyMoney show that four in ten adults have never checked their credit score.

That means many won’t necessarily know why they’re paying over the odds in interest repayments and what they can do about it.

“Even though it might take time to build or rebuild your credit score, it’s never too late,” Mr Douglas said.

You can check your credit history for free at any of the following:

• Equifax via Clearscore
• Experian
• TransUnion (which was CallCredit) via Credit Karma

Rest assured that checking your report doesn’t affect your credit score.

It might be worth checking all three credit reference agencies so you can be sure the details they hold are correct.

If you spot any mistakes, you can then ask for them to be corrected.

That could put you in a stronger position to cover regular expenses and avoid debt in the longer term.

“Just getting on the electoral roll, fixing something which is wrong, or sending the right signals to banks can all help to increase your score,” Mr Douglas said.

“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.”

Mr Douglas added that it could be a good idea to look out for banks who use open banking data to make lending decisions.

He acknowledged that this might sound “daunting or complicated”, but said it’s actually a “simple and secure way for you to manage your money and for financial institutions to assess your credit worthiness”.

This, he stated, would give lenders a more accurate view of a customer’s finances and “unlock a wider range of more personalised options”.