Having a poor credit score costs £19,000

Having a poor credit score can damage your ability to get a mortgage, loan or mobile phone deal, but it could also cost you a year’s salary if you are a regular credit card user, according to research by ClearScore.

The credit-rating agency estimates that people with less than perfect scores waste an average of £19,181 over a lifetime of avoidable interest as banks and card providers raise APRs based on perceived risk.

Interest rates on credit cards can vary by as much as 16 per cent between the best on the market and the most expensive. A typical APR rate offered to someone with a low credit score is 36.5 per cent, compared with 20 per cent for someone with an excellent rating, says ClearScore. This can make a big difference when, according to the Money Charity, the average UK household credit card balance is £2,325. Yet ClearScore found that 61 per cent of Britons have never checked their credit score.

Nicolas Frankcom, money expert at uSwitch.com, says: “The advertised APR isn’t available to everyone, so to get the best rates it’s important to know your credit rating.”

The end of September is when comparison sites see a big rise in demand for new balance transfer cards, as people consolidate their debt after summer holiday spending. Credit card companies aim to win new customers before the peak Christmas shopping period, so now is the time to hunt for a deal.

Balance transfer cards

“Using a 0 per cent balance transfer card is a great way to consolidate debts and the market has been very competitive in this area,” says Rachel Springall of Moneyfacts.co.uk.

“Not only are we seeing some of the longest interest-free deals on offer, but the balance transfer fees are also reducing for many cards. The average balance transfer fee today is 2.3 per cent, down from 2.5 per cent a year ago, and the longest interest-free term is 37 months, up from 34 months last year. We have even seen a 40-month card this year from Virgin Money. Some of these cards offer a money transfer facility, so borrowers can credit their bank account using the credit card for a fee, which could really help those regularly stuck in an expensive overdraft.”

Halifax launched a market-leading credit card deal this week, offering 0 per cent interest over 37 months on balances transferred within 90 days of opening the account, plus 0 per cent interest on purchases made within the first six months. Customers who transfer £1,500 will get £35 cashback until October 30. This is Halifax’s longest ever 0 per cent balance transfer card, with a 2.75 per cent transfer fee. Its 32-month card has a fee of 1.39 per cent.

Moneysupermarket.com calculates that individuals with £1,500 of debt who are charged a typical interest rate of 19.3 per cent are paying £288 over 12 months.

Clearing the £1,500 with a transfer from the new MBNA Platinum card, for example, which offers 24 months at 0 per cent with a 1.89 per cent fee, would only cost £28.35 — a saving of £260.

Virgin Money’s 37-month Balance Transfer Credit Card provides 0 per cent interest on money transfers, but has a 4 per cent transfer fee.

Interest-free purchase cards

As with balance transfer cards, the present deals on interest-free purchase cards are the longest ever offered — ideal for those who aren’t in debt but have some big expenses all at once. The lengthiest repayment term is 26 months, up from 20 months last year, offered by Clydesdale Bank and Yorkshire Bank on their Gold MasterCards. Beware, after this you pay a fairly high rate of 18.9 per cent APR.

The Post Office Money Online Matched MasterCard offers 0 per cent on purchases for 25 months, also with an APR of 18.9 per cent. Santander’s 123 credit card customers pay 0 per cent on purchases for 23 months but the card has a more reasonable interest rate of 16.5 per cent thereafter. It also offers cashback, but fees will rise in January from £24 a year to £36 a year.

Rewards credit cards

“We’ve seen an alarming trend with reward credit cards being pulled, or dramatically cut,” says Mr Frankcom. “RBS, Natwest and Capital One all ended their schemes for new customers, while Tesco has announced it will halve its Clubcard points from next month.”

Some competitive airmiles, cashback and rewards credit cards are still available, however, if you move quickly.

Ms Springall recommends the American Express Platinum cashback card that offers 5 per cent on purchases of up to £2,500 a year in the first three months, and 1.25 per cent thereafter. But it has an annual card fee of £25.

American Express’s Platinum Everyday card has no fee, but a less generous offering of 5 per cent for three months on spends of up to £2,000 with a maximum of £100, standard cashback of 0.5 per cent on spends up to £3,500; 1 per cent on spends between £3,501 and £7,500 and 1.25 per cent on spends of more than £7,501. Barclaycard has one of the most generous rewards schemes on its Freedom Rewards Visa card, with 0 per cent interest for six months and 21.9 per cent APR thereafter. You earn points in supermarkets, petrol stations and “Freedom partners” outlets.

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