Throughout your life, your credit score will play a key role in the financial products you take out, therefore it’s important to know how your debt can affect it.
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A credit score is a number that reflects the likelihood of you paying credit back. Your credit score is made up of things such as your current total amount of debt, details of unpaid debt, details of any defaults and the amount of credit you have available, for example available credit on your credit card.
Throughout your life, your credit score will play a key role in the financial products you take out. For example, when applying for a credit card or mortgage, it will determine whether your application is accepted and what interest rate you end up paying.
Failure to repay a debt can have a negative impact on your credit score. Missing payments or being late with payments can remain on your credit report for up to 7 years. If a creditor believes you are unable to pay what you owe, they may write your account off as a loss and close your account. If a creditor feels they no longer can recoup a debt, they may sell the debt to a collection agency which would negatively affect your credit score and stay on your report for 7 years.
If through debt, you have had items repossessed, this information too would appear on credit reports and would tell potential lenders you failed to repay an important debt as agreed.
There are three main UK credit reference agencies and a number of free places to check your scores. The largest credit reference agencies in the UK all offer some type of free check. They are:
| Equifax | www.equifax.com |
| Experian | www.experian.com |
| Call Credit | www.callcredit.co.uk |
People can only see your credit score if they have a legitimate reason to.
Companies that may look at your credit score include banks, mortgage providers, creditors and lenders, potential employers, utility and service companies, letting agents and landlords, debt collection agents and insurance companies.
A credit score is a number typically between 300 and 850. People with a higher score are often seen as lower risk, which means lenders are more likely to give them credit. However, having a low credit rating needn’t be a problem, if you can budget well from month to month and manage without having to take out new credit any more.
It is possible to take actions to help improve your credit scores. One of the main ways to do this is by paying your bills in full and on time, as agreed under the terms of your contract with the lender. Positive payment history i.e. not missing payments, is the single most important factor in many credit scoring models determining credit scores.
Another way of improving your credit score is to only apply for, and open, credit accounts when you really need them. This can help positively affect your credit history and reduce hard inquiries.
New research from the Financial Conduct Authority (FCA) has found that while many are struggling to meet financial commitments 7.4 million people were struggling to pay bills and credit repayments in January 2024, down from 10.9 million in January 2023.
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Debt Awareness Week aims to shed light on the challenges individuals encounter while dealing with various types of debt and to emphasise the importance of seeking help to manage their finances effectively.