The cost of a poor credit rating: Households with bad records ‘spend £1,225 extra’ each year on financial products

A family with a poor credit rating could end up spending £1,225-a-year more on financial products compared to one with an excellent credit history, a study has found.

With many likely to be struggling with debt repayments already, a study by credit card provider Aqua found that families with poor credit records also have to pay hefty premiums on their household expenses.

Middle income households with a chequered financial history, it found, could be paying anything between £1,089 and £1,225-a-year more than those with decent credit ratings, as the fork out more on car loans, energy bills, and credit card interest.

Cranfield Business School's Dr John Glen, who carried out the research, said: 'Simply put, poor credit is costing households in the UK billions.

'It's alarming that often the people who need the most help are the ones who are charged more for everyday household products and services.

'And it's not just a small number of people, previous research commissioned by Aqua has found that 57 per cent of adults in the UK are "at risk" of being declined credit as a result of a low credit score.'

Aqua's Cost of a Poor Credit Rating report compared a series of financial products and how much they would cost for someone with a poor rating compared to someone with a good credit score.

It found that in some cases, a £8,000 car loan could cost a household with a poor rating as much as £6,798 in interest payments, compared to just £1,198 for someone with an excellent rating.

They may also spend up to £115-a-year extra on broadband, £1,500 on credit card interest, and £150 on energy bills.

The study found that families with children were the hardest hit by the additional costs associated with poor credit.

James Corcoran, of Aqua, said: 'We commissioned this research as we believe in the importance of helping people be better with money, and so be better off.

'Our latest research shows that having a poor credit rating really does matter - it costs you money.

'The amount wasted every single year by having a poor credit is significant in terms of people's disposable income and is the equivalent of an average family's annual gas and electricity bill.'

If you want to improve your credit rating, follow the tips in This is Money's guide.