Debt tends not to be something that people in the UK like to talk about, but it affects more of us than you might think.According to the latest report by debt advice charity StepChange, the cost of living crisis was the second most common reason for debt in 2022 and a growing portion of clients are in arrears with their energy bills. Almost 11 million adults in the UK are struggling to pay their bills and debts in the UK, which is an increase from the previous year.
Improving your credit rating while facing large debt can feel overwhelming. But that doesn’t mean you can’t make simple changes to help the situation. Here are some pointers.
How can debts affect credit scores?
If you regularly miss payments and build debt overtime, this can reflect poorly on your credit rating. Missing even a single payment could make an impact. Similarly, borrowing more than you can afford could land you in a tricky situation.
If you find yourself unable to pay your debts, you might have to get a Debt Relief Order or Individual Voluntary Arrangement. In extreme cases, lenders can get a County court judgment issued against you or apply to make you bankrupt. These events can have a knock-on effect on your credit score.
5 ways you can improve your credit score despite the debts
To help improve your credit score, despite existing debts, you can take the following steps:
- Check your credit report: By checking your credit report using a range of providers, you can get suggestions on steps you can take to improve your score. Try checking multiple credit reports from several providers, as you may get different insights from each as they likely hold varying data.
- Check for errors and report mistakes: The smallest of errors, such as a misspelling when providing your address, can affect your credit score. Check your credit report to file through any potential mistakes. If you spot a mistake, contact the provider to get it changed.
- Avoid making numerous applications: Being turned down for additional credit is often a sign to stop applying for more. Several applications in a short space of time can reflect badly on your credit rating. Some people opt for debt consolidation as a form of debt refinancing to help stay on top of the situation.
- Keep old accounts open to show a long credit history: By showcasing a long period of credit history, this can show lenders that you can manage several credit accounts. Mature credit accounts can be a good sign in these circumstances and can show that you have only used a small amount of your credit limit.
- Paying bills consistently on time: Timely bill payments are one of the best ways to signal to lenders that you can manage your finances successfully. Check which bills count towards your credit score by looking at your credit report. Get in touch with your provider if you are worried about missing a payment.
