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.
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.
How debt affects your credit score
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.
Where can I check my credit score?
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:
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.
What is considered a good/bad credit score?
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.
How to improve your credit score
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.
What happens to your credit score when in a IVA?
Having an IVA will have a negative effect on your credit rating. The chances are that if you are in an IVA, you will have had missed or late loan repayments which would have negatively affected your credit rating.
How long will the IVA show on your credit file?
Once your IVA is completed, your details will be removed from the Individual Insolvency Register after three months. Details of the IVA will be held on your credit file for six years from the date that the IVA was approved or until the IVA is completed if it takes more than 6 years.