People with a poor credit history are being hit with punishing credit card of approaching 55 percent which can add £872 to annual payments – and it could be due to an error.
Repayments on the average balance of £2,906 can be £73 more every month because are higher than for someone with a good credit score, according to experts at TotallyMoney.
Around half (49.2 percent) of credit card customers pay interest on their borrowing every month with the total figure owed by UK consumers on their cards put at a staggering £33 billion.
Typical APR for a credit card are around 24.9 percent – however, people with a black mark on their credit history, perhaps because of missed payments on loan repayments or mobile phone contract, can be charged as much as 54.9 percent.
TotallyMoney commissioned experts at to identify the cost of paying interest on credit cards across different credit score ranges and values.
Around half (49.2 percent) of credit card customers pay interest on their borrowing every month (Image: Getty)
This found that someone with a poor – subprime – credit rating could be paying £1,595 in interest each year on the average balance of £2,906, while a prime customer might be paying £723.
TotallyMoney said: “The crisis continues to stretch people’s finances, while some may see their credit utilisation rise and amount owed increase. In the past 12 months, total credit card balances have grown by 7.7 percent to £33bn, and one in two people are paying interest on their borrowing.”
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 4 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.
“But even though it might take time to build or rebuild your credit score, it’s never too late. One of the best things you can do is to take control and sign up to a free credit report service. Any good provider should be able to tell you what’s holding you back, and give you a personalised plan to help you get on track.
“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. 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.
“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. So it’s also worth keeping an eye out for banks who make their lending decisions using open banking data.
“ It might sound daunting or complicated, but it’s a simple and secure way for you to manage your money, and for banks and financial institutions to assess your creditworthiness. And because of that, it’ll give the lender a more accurate view of your finances, and you could unlock a wider range of more personalised options.”
TotallyMoney can help customers improve their credit score and avoid interest. Mr Douglas said: “Our free personal finance app puts customers in control of their own financial data, and makes it work for them, not against them.
“As a result, one in four people with little or no credit history build one within six months, and 60 percent of customers with a poor credit score see an increase within a year.”
Andrew Hagger, Personal Finance Expert from , said: “The ongoing 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 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.”