October 7, 2022

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Energy bill warning as one million have credit scores hit – how to avoid it

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ONE million Brits will have their credit scores crippled by the energy crisis, according to credit experts.

Three million households should not cancel their energy bill direct debits to protect their credit scores.

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Around 63% of Brits have seen their credit scores impacted from a single missed payment[/caption]

The research comes from Credit Karma, after more than three million Brits have said that they plan to cancel their energy direct debits in October.

Analysis of 40,000 households who missed a utility payment between March 2021 and May 2022 showed that 63% saw a negative impact on their credit score within three months of missing a single payment. 

Your credit score can have a huge impact on you getting the best credit card, mortgage and loan deals.

Those with poor credit scores are less likely to be able to borrow money through regulated avenues.

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Akansha Nath, head of partnerships at Credit Karma said: “Cancelling direct debits and missing repayments can have a direct impact on your credit score.

“If you’re worried about making repayments, explore all the available help open to you, from government support, to repayment extensions from your provider.”

It is estimated that 31% of those who have had their credit score skewed after missing and energy payment have been recategorized as subprime borrowers.

This means they are less likely to get a good deal on credit and even if they are accepted for credit, it will be at a higher cost.

Subprime borrowers pay significantly more to borrow than those with prime credit scores, with the difference annually being around £2,700, or £129,000 across a lifetime on credit cards, car finance, mortgages and unsecured loans.

And if these individuals cannot afford these expensive forms of credit many could be pushed to borrow riskier unregulated credit through buy now pay later platforms and payday loans companies.

From October the first, all households will start to receive a £400 energy bill discount.

The payment will be dished out by your energy supplier and will be split across six discounts between October and March next year.

Households will receive a £66 energy bill discount in October and November and a discount worth £67 in December, January, February and March.

In November, a £300 one-off “Pensioner Cost of Living Payment” will be paid out to eight million households.

It will be given to those who already get the winter fuel payment – which is worth between £100 and £300 for those over state pension age.

Millions of households are in line to get the £150 Warm Home Discount between December and March 2023.

Check if you can get an energy grant

There are plenty of energy grants and schemes open to help you out if you’re struggling.

British Gas has recently confirmed that it’ll pay its most vulnerable customers grants worth £750 to help with sky-high bills.

The British Gas Energy Trust has previously paid struggling households up to £1,500 – and you don’t need to be a British Gas customer to apply for this help.

Ask your supplier what’s on offer and how to apply, or check here:

  • Bulb energy fund
  • EDF’s energy customer support fund
  • E.on’s energy fund
  • Octopus Energy Octo Assist fund
  • Ovo’s debt and energy assistance
  • Scottish Power’s hardship fund

You can get free debt advice

If you’re in debt there are plenty of services you can take advantage of and they offer free advice on how to manage debt.

Most of them can offer you free guidance and help in person, over the telephone or online.

  • Money Helper – 0800 138 7777
  • Citizens Advice – 0808 800 9060
  • StepChange – 0800 138 1111
  • National Debtline – 0808 808 4000

What is your credit score?

Your credit score, sometimes called credit rating, determines your creditworthiness to lenders.

One thing that confuses many people is the score you are given if you check your rating.

All three companies have different scoring systems and there is no universal rating or score.

Experian will rate you on a scale of 0-999, Equifax from 0-700 and TransUnion from 0-710.

For all three, the higher your score, the better your rating.

Keep in mind that these scores are not a guarantee – just an indication of how favourably a lender is likely to view you.

How can I view my score for free?

All three CRAs offer you the chance to view your score, report and more for a monthly fee BUT you can get hold of your score for free without paying for a subscription.

For on-going monitoring, here’s what the three credit reference agencies provide:

  • Equifax: You can check your score and report for free for the first 30 days, after which it’s £7.95 a month.
  • Experian: You can check your score for free using its online service. But if you want to check your report itself, you can only do this for free using a 30-day trial, after which you’ll be charged £14.99 a month.
  • TransUnion (formerly Call Credit): You can sign up to its Credit Karma service for free to get unlimited access to your report and score for life.

You also have a legal right to request a statutory report on data that credit reference agencies hold on you but this won’t include your score. You can usually apply for this on a credit reference agency’s website or by post for free.

Alternatively, you can check your credit score for free using the following third parties:

  • ClearScore: ClearScore uses Equifax’s data to provide both your score and report free.
  • MoneySavingExpert.com: This tool uses Experian’s data to provide your score and report for free.

How can you improve your credit score?

While there is no credit blacklist which bans people from any sort of borrowing at all  – if you have struggled in the past you may find lenders won’t consider you.

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If that’s the case then there are steps which you take to help improve your rating:

  • Get on the electoral register – This proves who you are and where you live meaning it’s easier to get credit if you’re on the list. Also check the electoral role for any errors. You can sign up by registering to vote.
  • Don’t make too many credit applications – Making lots of requests in a short period of time can be seen as a sign of financial distress – and each application will be recorded on your file. Use a “soft-search” eligibility calculator to show how likely you are to be accepted.
  • Always pay your bills – Late payments are also recorded in your file so make sure you pay your monthly bills on time including utility and credit cards.
  • Pay down your debt – Try and cut down your existing debt before applying for new credit as lenders may be reluctant to lend to you if you already a large amount of debt.
  • Use a credit-builder credit card – These cards tend to have high interest rates compared to normal cards but if you can show you’re a responsible spender with them, it can improve your chances in the eyes of lenders.
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