Taking out a credit card to help pay towards everyday essentials, and to ease the financial burden of larger purchases has for many become the norm. However, it is easy to forget how it can impact our finances in the future.

Unexpected events or expenses can make it hard to keep up with a repayment plan. Some people struggle to pay back what they owe and can start incurring debt. Outstanding credit card debt came to £63.9 billion in January 2023, this was an increase of 9.01% (£5.3 billion) to the year prior. Credit card debt averaged £2,277 per household and £1,202 per adult [1].

Incurring debt may not seem like an issue, and you may think you’ll pay it off in due course. However, the amount of debt you have can negatively impact your credit score.

Importance of a good credit score

A credit score rates a consumer’s creditworthiness to potential lenders. It’s a 3- digit number a company looks to when determining whether they will accept your application to borrow. The higher your score is, the better a borrower looks to a lender.

If you have a poor credit score you may find you’re offered a higher interest rate, which can make it harder to get out of debt. Also, the credit options available to choose from are significantly lowered.

Improving your score

There is no quick fix to building a credit score, it takes time. However, starting sooner rather than later can increase your chances of being approved for credit you may require.

Actions which may help improve your credit score:

  • Register on the electoral roll at your current address – this shows you are really living where you say you are making you less likely to disappear and default on payments.
  • Avoid moving too often – lenders like to see stability in your circumstances. This is not always possible but worth bearing in mind.
  • Build up your credit history – having little or no credit history can make it difficult for companies to assess how risky you are. This could lower your credit score. Responsibly building up your credit history can improve this.
  • Pay accounts on time each month – this shows lenders you’re a safe bet and can handle credit responsibly.
  • Keep your credit utilisation low – this is the percentage of your credit limit you actually use. For example, if you have a limit of £1000 and you’ve used £500 of it, your credit utilisation is 50%. A lower percentage is usually seen in a positive light and should help your score go up.
  • Only borrow what you can afford – getting into significant debt may lead to County Court Judgements (CCJ), an Individual Voluntary Agreement (IVA) or even bankruptcy. These will stay on your credit report for at least six years and will have a significant, negative impact on your credit score.

If you or anyone you know is in a difficult financial situation, and you need to speak to someone, StepChange, National Debtline and Citizens Advice are all charities which offer free independent advice and can help ease anxiety and help you get back on track.


[1] The Money Statistics, March 2023; https://themoneycharity.org.uk

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