Why missing a bill payment could cost you dear

Last year, nine million of us put our future chances of obtaining credit in jeopardy by missing bill payments, says new research.

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MoneySupermarket found that one in six of us missed at least one bill payment in the last 12 months, with credit card and council tax bills causing the biggest problems.

But a missed bill payment can stay with you and hamper your chances of being accepted for other forms of credit in the future. So here’s a closer look at the research, how you’re affected by missed payments and what to do if your credit score is impaired by one.

Millions miss payments

Our research found 3million people missed a credit card bill payment in the last year, while 2million people missed a council tax payment – based on a survey of around 2,000 people, weighted to nationally representative criteria.

Missed payments for electricity bills and mobile phone bills were also fairly common, with 1.5million missing a payment. A million of us also missed our rent payments.

But it’s not as though we take a blasé attitude towards missing payments, as a fifth of us (22%) worry about what it can do to our credit rating.

Of these people, those aged 25-34 were most worried about the effects of a missed payment (40%) – perhaps as they approach home-buying age and worry about whether mortgage applications will be accepted or rejected.

18-24 year olds were marginally less worried about it, with 30% expressing a concern. That said, 16% of those surveyed found that having a bad credit rating or lower credit rating than they thought has stopped them from getting further forms of credit.

‘Knock-on effect’

Kevin Mountford, head of banking at MoneySupermarket, said: “With times being so tough for most UK households and spare cash being tight it is easy to see why people may have difficulty in paying bills on time, or in some cases at all.

“Missing a payment could have a knock-on effect for future applications such as credit cards and mortgages. Those applying for a credit card need to prove they can make regular and stable payments and any black marks against a credit profile would hinder chances of being approved.”

When you apply for credit, be it a credit card, loan or mortgage, the lender will look at your credit history to assess how responsible a borrower you are, based on how you’ve handled credit in the past.

Traditionally, banks and building societies have shared payment details with credit reference agencies such as Equifax and Experian. But gas, electricity and water utilities companies are now also starting to report some elements of our repayment histories, and landlords will soon be able to report on rent payments under new plans. Local authorities don’t report missed council tax payments, but it is becoming more difficult in general to miss a payment and not have it affect your credit rating.

Missing one payment may not specifically alter your overall credit score, says Kevin Mountford, but it could still go against you when applying for credit in future as banks look closely at repayment history and how you’ve managed your finances.

As Rachel Wait explains in her article here, for example, even a missed mobile phone payment from years back can scupper a mortgage application.

And it’s not just a matter of being accepted or rejected for credit, as customers with the best credit scores are offered the best deals.

For example, you may not get the headline rate advertised on a credit card or loan if your credit score isn’t pristine – this is because advertised rates are representative and only have to be offered to 51% of successful applicants. Other applicants will be offered different, less attractive rates according to their own individual circumstances.

What’s more, missing a payment on a 0% credit card can see you lose the interest-free deal, with the card reverting to the standard rate which will be costly – the average credit card rate stands at 17.69%.

How to improve your credit score

If missed payments are affecting your credit score, the obvious solution is to set up automated direct debits to make sure your bills are paid on time. But even if you’ve already missed payments, there’s plenty you can do to start cleaning up your profile.

For a start, get hold of your credit report, which you can do through one of the credit reference agencies – head over to our credit reporting channel to compare your options. Then take a look at this article by Jessica Bown which offers 10 ways to improve your credit score, such as closing down accounts you no longer use and checking your credit file for errors.

If you compare credit cards with MoneySupermarket, you’ll also be able to see your chances of being accepted for each card by clicking the ‘Will you get this card?’ button, without leaving any trace on your credit file.

Our loans channel will also give you a personalised indication of how likely it is you’ll be accepted for each loan, reducing the chances of your application being rejected.

But prevention is better than cure, so making sure you never miss a payment will help to keep your credit score in shape.

If you’re at risk of missing a payment, Kevin Mountford offers this advice: “If you are missing bill payments because you don’t have the spare cash, then you should speak to your supplier immediately as they may be able to help you in the short term. Not only will this help prevent further damage to your credit profile, but may also provide peace of mind.”

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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