Close to one million UK consumers will experience severe and long term damage to their credit scores if they cancel their energy payments in October. The research comes from smart money platform Credit Karma, combining data on the damage caused to scores from missing just one utility bill payment and polling to estimate the number of Brits planning to cancel their energy payments come October.
More than three million (3.16m) Brits say they plan to cancel energy payments from October. Based on an analysis of 40,000 Credit Karma members who missed a utility payment between March 2021 and May 2022, nearly two-thirds (63%) saw a negative impact on their credit score within three months of missing a single payment.
For close to one third (31%) of those missing utility bill payments, this damage to their credit rating was so severe, it took them from prime borrowers (more likely to secure credit and at a better rate) to subprime (less likely to get credit and at a higher cost). That’s the equivalent of nearly one million Brits who face a crippled credit score from missing energy payments.
The true number is likely far higher, taking into account those who don’t plan to cancel their direct debits, but could inadvertently miss a payment when they fall foul of the higher charges. And this impact to credit scores could be worsened by compounding missing payments.
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.
More than half (54%) of those planning to cease payments to energy companies have been influenced to do so by the growing Don’t Pay campaign in the UK, who want action taken before October to protect millions who cannot afford the price rises.
Akansha Nath, head of partnerships at Credit Karma said: “The rising cost of living has felt relentless for many households over the last year, and the expected changes to energy tariffs in October are understandably making many people feel anxious about their financial future. But it’s important for consumers to remember this can have longer term consequences on their financial stability.
“Cancelling direct debits and missing repayments can have a direct impact on your credit score, or even result in a county court judgement (CCJ), which could leave a long term impression on your ability to borrow money in future. If you’re worried about making repayments, explore all the available help open to you, from government support, to repayment extensions from your provider.”
