Don’t fall into the poor credit trap

With household finances at breaking point across the UK, many consumers will be looking to consolidate their debts or take out a new loan or credit card to give them some much needed financial flexibility.

Analysis from moneysupermarket.com shows the importance of consumers maintaining a ‘good' credit rating and checking their file regularly before applying for new credit.

When it comes to securing credit, a consumer's choice of products is largely dictated by the information held in their credit file and as a result, it is absolutely crucial they avoid any activity that could damage their profile. The difference in products available to those with a ‘good' credit profile and those with a ‘poor' credit profile is staggering and highlights the importance of avoiding black marks.

For example, only those with an excellent credit rating have a good chance of being accepted for the Barclaycard Platinum Credit Card which offers a market leading 20 months interest free on balance transfers. Someone paying the minimum repayments on a £1,000 balance with this card would end up paying just £33.80 in interest over the first two years.

Conversely, a consumer with a poor credit rating has limited choice, but would probably be eligible for cards, such as the Vanquis Credit Card which offers a representative rate of 39.9 per cent APR. Paying just the minimum payments on a £1,000 balance would end up costing £632.29 in interest over the same period - a difference of £598.49.

Kevin Mountford, head of banking at moneysupermarket.com said:  "It will come as no surprise to many people that the difference between a good and poor credit history can add up to hundreds and sometime thousands of pounds in additional interest. It is therefore vital that consumers understand their credit profile before applying for a new credit card or loan, because getting rejected could damage their profile further, making it harder to secure credit in the future.

"The benefits of having a clean credit history are obvious, and consumers need to do everything they can to avoid falling into the ‘poor credit' trap, as once blemished, improving their profile can take time. Ultimately providers are looking for evidence that the customer is financially responsible, so things like paying bills on time, never missing payments and staying within their overdraft limits will all help consumers clean up their profiles and eventually secure the best deals.

"Those with a poor history have more limited options, but in many cases it is worthwhile considering one of the many credit builder products on the market as these can help rebuild credit files as long as they are used correctly. Although rates on these products may appear high, they may be a suitable option for those with existing debts they are struggling to refinance. Unfortunately though, many consumers will not have this option. If you have debts that you cannot refinance, speak to your lender to find out if they can help, or alternatively seek help from one of the fee free debt advice charities.

"If you have a good or excellent credit history then you are in a very fortunate position, but you should do all you can to protect it. Don't apply for credit without first checking your credit profile, as any errors on your file could lead to rejection, which in turn can leave a black mark on your file. Understanding the chances of being accepted is vitally important in today's market, and this can make a major difference to the interest rate you will be charged. You can obtain a copy of your credit report from one of the main credit reference agencies such as Equifax or Experian for just a few pounds."

moneysupermarket.com has a personal credit profiling tool called Smart Search that helps people search and apply for the most suitable credit card based on their personal circumstances. Smart Search maps the consumer's credit file against the all the credit cards in the market for which they will most likely be accepted - without leaving a mark on their file.