How Will a Debt Arrangement Scheme (DAS) Affect my Credit Rating? - Carrington Dean stars-five-icons

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30.10.2018

How Will a Debt Arrangement Scheme (DAS) Affect my Credit Rating?

Residents of Scotland are able to reorganise their debts using the Debt Arrangement Scheme (DAS). By working with an professional adviser, they can create a programme called a Debt Payment Programme (DPP). This plan calculates their surplus income and suggests this to their creditors as their monthly payment. While this scheme can result being in debt for a much longer period of time, it can make budgeting much more manageable.

Using a DPP has many positives and negatives, but one notable concern for anyone considering it as a solution is ‘How does a DAS affect my credit rating?’. Your credit rating is an essential resource in the modern life as it informs potential lenders how trustworthy and financially responsible you are. A bad credit score can result in high interest rates or, worse, being refused credit entirely.

The DAS Register

When your DPP is approved, you are placed on the DAS register. This is coordinated and managed by the DAS administrator and is available to the public. Credit rating agencies use this register, along with other insolvency registers, to add information to your credit report, which informs your credit score.

Therefore, your DAS is likely to negatively impact your ability to take out further credit. Like most other formal insolvency solutions, the DAS’s presence on your credit report is for a minimum of 6 years. However, it is worth noting that, while the DAS can last much longer as repayments can continue to up to approximately 12 years, some Scottish insolvency solutions, such as a Trust Deed, ends repayments after only 4 years.

Generally, you should avoid taking out further credit while you solve your debt problems. This is good advice regardless of which insolvency solution you choose. If you think you may need further access to credit, discuss this with a money adviser.

Improving Your Credit Score

The honest truth about seeking help with your debts is that you are likely to already be suffering from a poor credit rating. The good news is that there are plenty of ways to improve your credit score, but it is important to note that many of these are only a good idea to pursue if you are now in a reasonably financially stable condition. This usually means you are actively dealing with your debts and can picture a debt-free future.

  1. Join the electoral roll

It might seem like a simple solution, but it is the quickest way to positively impact your credit score. By registering to vote, you are proving to creditors that you are responsible, stable and secure. This is what lenders are most looking for when you seek credit.

  1. Check your record for mistakes and fraud

You can ask for a copy of your credit file from any of the main credit report agencies. It is a good idea to do this as information on the report can be wrong, and this may be giving lenders the wrong idea about you. Small details, such as the wrong address, could be confusing the system, and there may be bigger issues like debts make fraudulently in your name or old CCJs that should have been removed.

  1. Set up a direct debit for your bills

Your utility bills are a kind of debt, so the faster you pay them off, the better. Paying your bills on time every month is a great start to rebuilding your credit. If you think you are likely to forget to pay them, set up a direct debit so that payment occurs automatically.

  1. Unlink your account from anyone else with a poor credit score

Some credit reports can be linked, such as to your spouse, but this does not need to be the case. It is a myth that you are automatically impacted by the debts of your spouse. You are only impacted by joint debts that you take out together in both of your names. If a partner or family member has a bad credit history, make sure your account is not linked to theirs.

  1. Avoid County Court Judgements (CCJs)

If you have been warned that a debt might soon result in a CCJ, try and prioritise paying off that debt next. Don’t worry if you have been served with a CCJ, you have a month to pay it before it becomes a more permanent fixture on your record, but it might be a good idea to ask for confirmation that it has been removed once you have paid. It is still worth paying the CCJ after the month is up, as a ‘satisfied’ CCJ looks much better than an unpaid CCJ. Regardless, the CCJ is removed from your credit record after 6 years.

  1. Don’t move home

Moving home frequently can make you appear financially insecure and difficult to find. Lenders don’t want to worry that you are going to pack up and disappear before you repay your debt. Sometimes you can’t avoid moving home, but try to avoid moving every year or two. Just like the electoral role, you want to be able to convince a bank that you are settling down in a financially responsible and secure way.

  1. Use a Credit Card

There is no better way to rebuild your credit score than to prove that you can take out a loan and repay it promptly, and credit cards are a great way to do this. Unfortunately, it can be difficult to take out a credit card when your credit score is low, not to mention dangerous. This is why it is essential that you seek a debt solution and repay your old debts before seeking to take out new credit.

You could consider a credit building card, which is specially designed for people who want to rebuild their credit file. These cards have low limits and a high interest rate, so there is still considerable risk involved. Use it to pay for small amounts that you know you can instantly pay off, and never use it to pay for something that you do not otherwise have a plan to pay for.