How can I get an energy deal with bad credit?
By Emma Lunn | Friday, February 19th 2021
You might think a poor credit history will only affect you if you want to take out a mortgage or credit card, but it can also affect your eligibility for the best energy deals on the market.
Most energy companies will only accept customers onto ‘post-pay’ energy tariffs if they pass a credit check. But it’s still possible to get a decent energy deal if you have bad credit – we explain how it’s done.
Why do energy suppliers carry out credit checks?
Like mobile phone companies and credit card companies, energy companies will want to be pretty sure you can, and likely will, pay any money you owe them. They assess this risk by carrying out a credit check.
All energy suppliers will carry out a credit check if you apply for a post-pay tariff. Post-pay tariffs include those paid by monthly direct debit and those paid on receipt of a bill. The other type of energy tariff is pre-pay using a prepayment meter (more on this later).
How bad is your credit score?
Energy companies that credit check customers will use a credit reference agency. The three credit reference agencies in the UK are Experian, Equifax and CallCredit.
It’s important to understand that when you are credit checked for energy, the bar is set much lower than if you applied for a credit card or a mortgage. Basically, even if you have a bad credit rating, it won’t necessarily be so bad that you’ll be rejected for a post-pay energy tariff. Energy companies will specifically look for recent debts to energy companies on your credit report, rather than missed credit card payments from years ago.
If the energy company isn’t happy with your credit check or payment history it may give you one or both of the following options: have a prepayment meter installed or pay a deposit for a post-pay tariff.
Most homes have a credit meter. This records the energy you use, which you then pay for afterwards – usually by monthly direct debit or on receipt of the bill.
If you have a prepayment meter, you’ll pay for the energy beforeyou use it. This type of energy tariff works in a similar way to pay-as-you-go mobile phones. You need to buy energy credit by adding money to a key or smart card, which you then insert into the meter in your home.
Paying for energy this way means you’re never in debt to your energy supplier because you pay for all your energy upfront. Hence you won’t need to pass a credit check to get a prepayment meter.
If you build up a large debt on a post-pay tariff, and your supplier isn’t happy with the timescale in which you plan to pay it off, it can force you to switch to a prepayment meter. If you don’t co-operate, the supplier can get a court order to enter your home and install a prepayment meter.
Prepayment customers pay more
Although prepayment meters put users in control of their energy payments and are less risky for suppliers, there’s one major downside: prepayment tariffs generally cost more than post-pay energy tariffs.
The very cheapest energy tariffs on the market tend to be online deals for those who have credit meters and pay by monthly direct debit. Prepayment customers typically pay about £200 more per year than customers on the cheapest post-pay deals.
This means that people who have bad credit and are forced to have a prepayment meter will invariably pay more for energy than people with good credit histories.
However, prepayment customers should still shop around for the best pre-pay tariff. What’s on offer varies between providers. Since April 2017 prepayment tariffs have been capped by the regulator Ofgem. This limits how much energy companies can charge pre-pay customers, although it will still, in general, be more than the best post-pay tariffs.
Other downsides to prepayment meters
Only a handful of providers allow you to top up your key online or by text. With other suppliers you’ll have to visit a participating retailer to top up your card or key. These retailers might not be nearby or open when you need them, or you might lose your card or key.
Also, if you run out of credit unexpectedly, your supply will be switched off until you press the emergency credit button. This could mean your fridge loses power when you’re out or the heating switches off.
Paying a deposit for a post-pay tariff
The other option for people with a poor credit history is to arrange to pay their energy supplier a deposit before switching to a post-pay tariff. Deposits should be for a ‘reasonable amount’ and are typically in the region of £150 to £300 per fuel.
The energy company can use this money to pay what you owe if you fall behind on your energy payments.
How can I switch from a prepayment meter to a credit meter?
To switch from a prepayment meter to a post-pay credit meter, you’ll need to pay any outstanding debt on your energy account and, with the majority of suppliers, pass a credit check.
Assuming you pass, the larger suppliers (British Gas, EDF, E.ON, Scottish Power and Ovo) will change your meter from prepayment to credit free-of-charge. Some other smaller suppliers may charge you for the switchover – typically about £140.
If you want to change to a credit meter but your supplier will charge you to do so, the solution is simple – switch to a supplier that will swap your meter for free then once your credit meter is installed, shop around for the most competitive tariff (you don’t have to stick with the company that changed your meter).
Some landlords like prepayment meters because it means tenants can’t vacate a property with a debt to their energy supplier. If you’re renting and want to switch from a prepayment meter to a credit meter, you’ll need permission from your landlord. However, your landlord cannot stop you from switching suppliers. So, whether you have a prepayment meter or credit meter, it’s your decision which supplier you choose.
How can I improve my credit history in order to get a credit meter?
The key is ensuring you're free of energy debt and have a good payment history with your energy supplier. While you shouldn’t ignore other bills and debts, focus on paying your energy bills on time
Make sure you’re on the electoral roll at your current address
Ensure there are no incorrect details on your credit record – check it regularly and if the details are wrong, ask for them to be corrected. End any financial associations with ex-partners
Don’t apply for too much credit and, where you are approved for credit, try not to use more than 75% of your available credit limit
Make sure you have a current account and have direct debits set up to pay other household bills