HELP WITH DEBT

Understanding Credit Score

HELP WITH DEBT

Understanding Credit Score

What is a Credit Score?

Credit scores go by many names, such as credit rating or ranking. Generated by a third party, your credit score is a number set on a scale that indicates how likely you are to qualify for credit.

Your score is calculated using a number of factors, including your overall debt level, how much debt is unpaid, if you have any defaults and how much credit is still available to you. The UK model generally ranges between 300 to 850, however, each credit reference agency has their own version.

Put simply, the higher your score is, the more likely you are to be accepted for credit. If you are struggling financially and there are defaults on your report, your score will be lower, making it difficult for you to obtain credit.

The main credit reference agencies in the UK are Experian, Equifax and Call Credit, although there are online alternatives such as ClearScore or Noddle.

What does and doesn’t affect my credit score?

How you handle your finances in general will have an affect on your credit score, but there are certain factors that can have more of an adverse effect than others.

Perhaps the most common factor that brings down your credit score is missing or late repayments as it presents you as a bad risk for credit. This is also the same for those who enter sequestration or insolvency.

It’s often perceived that having multiple lines of credit is good for your score, but it actually is the opposite. This also goes for having little to no credit history as there is nothing on the report to build up a score.

Your score can also be affected if you are not registered on the electoral roll. This is because it proves your name and address to lenders which boosts your chances of being accepted for credit.

However, there are some factors that won’t necessarily affect your score. Things such as your student loans or arrears to your rent/mortgage will only bring your score down if you have defaulted on it and/or it has been passed to a debt collector.

It is also a complete myth that your address has a credit score. If the individuals who have lived in your home before you have a bad credit score, this will not affect yours. This also goes for couples, with the exception of joint accounts.

What things should I watch out for on my credit report?

We always advise to check your credit report regularly. It’s important to check for any errors or missing information to help avoid financial issues or distress.

It’s also important to check that it has been updated. Once you have paid back a debt, it should show on your report as settled, however the credit reference agencies can take some time to do this so it’s worth checking this before applying for further credit.

What will happen to my credit score if I enter a Trust Deed or a DAS?

Your credit score will likely already be affected if you are struggling with debt, however, entering into a debt solution can also have an impact.

If you enter into a Trust Deed or a DAS, it will be recorded on a public register which can be found on the accountant in bankruptcy website. This is then used by the credit reference agencies to add information to your credit report, which will ultimately then appear on your credit score.

It will remain there for around six years, although this may be longer depending on the length of your arrangement.

It is important to remember however, that once you stop your regular payments to your debts, the creditors are able to register defaults on your report, which will ultimately bring your score down. The defaults will remain there for the duration of your arrangement and be updated to settled once it has been completed.

If you are struggling with your finances and your credit score is low, we can help. Contact us today to speak to one of our friendly advisors who are on hand to give you free and impartial advice.

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