What if I can’t pay my debts because of coronavirus?
Find out which debt solution is right for youGet started
Answer a few simple questions
See if you are suitable
Understand your next steps
Starting a debt solution might be the right way for you to take control of your debts, but the knock-on effect could be a badly damaged credit score, right? Come to think of it, if you go on a debt solution, could it stop you from ever borrowing again?
In fact, whilst a debt solution will have a negative impact on your credit history, it could also put you on the right path to improving it again, too. Here’s the lowdown.
What is my credit history?
Your credit history is a snapshot of your financial life over the last 72 months. It shows all your credit agreements, and whether you’ve paid them on time and in full, or any missed, partial or late payments.
It also shows any County Court Judgements (CCJs) or defaults you’ve picked up. Every month, a new month is added to your credit history and the oldest month is removed – so it changes 12 times a year.
When you apply for credit, lenders use the information in your credit history, as well as what you provide them with when you apply, to decide whether to lend to you or not.
How will a debt solution impact my credit history?
Make no mistake, a debt solution will have a negative impact on your credit history, but it could also be the foundation for improving it.
Formal debt solutions, like bankruptcy, an IVA, or a DRO, will show on your credit history for 72 months (that’s just over six years) even if the solution ends after just one year, which is usually the case with bankruptcy or a DRO. Similarly, if your lenders issue defaults against you, which often happens when you start a Debt Management Plan, then they'll show on your credit history for the same time.
However, bear in mind that if you're considering a debt solution because you've already missed payments (and potentially got CCJs and Defaults against you), these will already be recorded in your credit history and will have damaged your credit score.
Borrowing more money shouldn’t be on your agenda at this time – your focus should be on getting your existing debt under control.
So how can a debt solution act as the foundation for rebuilding your score? In effect, a debt solution can help you press "reset” on your finances by allowing you to repay or write off your problem debt.
You can then focus on rebuilding your credit history, so you can borrow again in future. A debt solution is about taking back control and steering yourself towards a better future.
Life after debt
So the good news is, once your debt solution has ended, you can focus on rebuilding your credit history. At the end of your solution, your lenders will mark your debts as “satisfied” or “settled” and then, if you’re careful, it’ll improve over time and you’ll be able to borrow again.
You can check our tips on repairing your credit history for ideas on how to do this, and for more hints you can also take a look at this Money Advice Service article to find out how to improve your credit score.
by Christine WalshBack to blog home