Damage to your credit record doesn't just mean less chance of a loan or credit card - it could also affect where you live and work.
If you have a poor credit rating, potential problems might not be limited to rejected loan, credit card and mortgage applications. Those of us who have missed repayments in the past, or even walked away from a debt, are likely to have had a note made on our credit file.
This is the document that a variety of companies consult when deciding whether to enter into a financial agreement with us. Unfortunately, these agreements aren't limited to bank loans and cards: the consequences of a bad credit rating can be even more serious.
1. Pay through the nose for your smartphone
If you want the latest iPhone or Samsung Galaxy, say, the most cost-effective way to get it is usually by signing up to a monthly contract with a mobile network. But because these contracts let you make calls and pay later, they are a form of credit deal – so you’ll need a clean credit record to be accepted.
If you can't get a contract, you can still opt for a pay-as-you-go tariff. But this will mean you have to pay upfront for your phone, rather than getting it as part of the deal. In the case of a new iPhone 5s, you could face a bill of more than £500 just for the handset.
2. Miss out on energy discounts
Most gas and electricity suppliers offer customers a discount if they pay by direct debit. Direct debits make it easier for the providers to get their cash – hence the incentive. For example, SSE cuts bills by £80 a year for customers who pay this way for both gas and electricity, while EDF shaves 6 per cent off bills.
But you may not be able to set up a direct debit if you've got a dodgy credit record. New research from credit card firm Aqua has found that three-quarters of people don't realise their credit history can stop them getting a cheaper energy deal.
3. Harm your job prospects
Depending on the type of occupation you have, a potential employer may also check your credit file. This is more likely if you work in financial services, for example, but checks are becoming more common across the board.
Tom Ilube, founder of credit-record company Noddle, says: "Potential employers need to be sure of who you are and an increasing number use credit-checking facilities to confirm an applicant's identity."
4. Lose your dream home
Landlords run credit checks on potential tenants as a matter of course these days: understandably, they want reassurance that rent will be paid on time. So if you have a history of missed loan or card repayments, this is likely to count against you.
Naturally, mortgage lenders will check the credit records of potential borrowers. An upswing in homebuying is expected this year, thanks in part to the government's Help To Buy scheme which is aimed at new entrants to the property market and those with small deposits saved up.
But research from credit-record firm Experian has found that a quarter of would-be first-time buyers have never checked their credit reports, while almost 40 per cent are not registered on the electoral roll at their current address. This is a key part of a credit check: any loan applicant whose address does not tally with electoral roll records is more likely to be rejected.
How do I improve my credit score?
James Jones at Experian says that people should understand it is possible to clean up a credit record. "Remember, that your most recent behaviour counts the most and so even if you have had difficulties in the past, there is light at the end of the tunnel," he says.
Ilube adds that you can build up a positive credit score by:
- Ensuring that you are registered on the electoral roll.
- Closing any dormant accounts.
- Paying all bills on time each month.
- Checking that any financial associations that are no longer active are removed.
- Limiting the number of times you apply for credit.
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