How Debt Affects Your Credit Score

Credit scores are a tricky thing to understand fully. Some people think that debt helps your credit score grow – but other people think that less debt will boost your credit score. It can be difficult knowing which information to trust.

To help, we’ve put together a free straightforward guide that will help you understand how different types of debt will affect your credit score.

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What exactly is a credit score?

To understand what a credit score is, it’s useful to first understand what a credit referencing agency is.

There are three main credit reference agencies here in the UK – Equifax, Experian, and TransUnion (which used to be called ‘Callcredit’).

Each of these agencies gives you a 3-digit number that shows how likely you are to be accepted for credit. This number is known as your credit score.

‘Credit’ is a way of describing any money that you borrow or the value of any goods you buy using any kind of finance.

For example, if you spend £500 on a new credit card; this is credit – or, if you buy a new pay-monthly sofa for £1,000 – this would be classed as £1,000 of credit.

Generally, the higher your credit score, the more likely it is that companies will give you credit. Also, as your score gets higher, you’ll usually find the amount of interest you have to pay comes down too – as companies will be more confident that they won’t have any problems getting the debt repaid.

What's the difference between your credit score and your credit report?

Everybody has credit scores (sometimes called ‘credit ratings’) and a credit history (sometimes called a ‘credit report’). To understand how debt can affect your credit score, it’s useful to understand how these things are connected.

Your credit score

credit score is the number that a credit referencing agency gives you as a quick indication of how likely you are to pay back any credit you have. There’s no single credit score – in fact, the credit scores you’re given by different agencies are slightly different:

  • An Equifax credit score is out of 700
  • An Experian credit score is out of 999
  • A TransUnion credit score is out of 710

The higher the number, the better the score. The better your score, the more likely companies are to lend you money or offer you credit. Different companies use different agencies to check your score – and some use more than one.

Your credit report

To help with credit scoring, credit referencing agencies look at your credit report. A credit report – also known as a ‘credit history’ – is a full list of anything you’ve done that relates to getting credit or borrowing money. It also includes personal data – like your name, address, and date of birth.

As an example; let’s say you’ve applied for a credit card or a monthly mobile phone contract. The credit search that’s carried out is recorded on your credit report – as is the amount you’ve borrowed, any defaults (missed payments), confirmations that you’ve paid the money back – and lots more.

Your credit history records everything credit-related for six years – it even records debt solutions you’ve had – like Individual Voluntary Arrangement (IVA) or a Trust Deed.

When old accounts you’ve held or previous debt solutions you’ve used have been on your file for the full six years, they are removed and can no longer be seen. Records of credit searches only stay on your report for 12 months though.

When something appears on your credit report, it will almost certainly have an impact on your credit score – but it’s not always bad.

What affects your credit score?

Since your credit score depends on your credit history – there’s a huge number of different money-related things that can affect your score. Some will lower your credit score – but some will help you get a good credit score.

We’ve looked at the good and the bad here:

What will hurt your credit score?

These are some of the things that can damage your score and eventually lead to a bad credit rating:

How much credit you’re using and how much you have available

If you’re near to your credit limit or using more than 50% of the credit that you have available, companies may think this is a sign that you’re not managing your finances very well.

Even if you’re not using it, having a lot of credit available might still cause companies to be nervous. If they lend you more, then you use all of the available credit, you may end up overstretched.

If you’ve made a lot of applications

If you apply for lots of credit cards, loans, or other types of credit (such as increasing a limit on an existing credit card) over a short period of time, lenders may see this as a red flag. It could mean you’re not managing your money well and desperate for any financial products you can find.

How often you move house

It might not feel like something that should matter, but long you’ve been at your current address and how often you move house can have an impact on whether or not lenders will give you a credit card or let you borrow money. Lenders prefer to see stability – and staying at one address for a long time helps to prove that.

Missed payments and defaults

If you miss any repayments, make smaller-than-agreed repayments, or ‘default’ (fail to repay credit), then lenders will see you as a much higher risk. Even one missed payment can damage your credit rating.

County Court Judgment 

If you fail to make repayments for long enough, the lender you’re failing to pay could take you to court to ask a judge to force you to make payment. This is known as a County Court Judgment (CCJ) and can have a huge impact on your credit score. Many lenders will be completely unwilling to offer you new credit or financial products if you have a CCJ.

Arrears – or ‘Bad’ Debt

Almost everyone has some amount of outstanding debt – whether that’s credit cards or another kind of credit account. As long as you make the monthly payment, lenders have no reason to report anything to the credit referencing agencies about your borrowing – but if you start to miss payments, this becomes known as arrears or ‘bad debt’. Being behind on repayments will damage your credit scoring and make it extremely hard to get any new credit.

Debt solutions

Debt solutions can be a lifeline if you’re facing financial struggles – but they will almost certainly impact your credit rating. If you’re considering a using a debt solution like an IVA, a Trust Deed, or Bankruptcy, it will be recorded on your credit file for 6 years and will badly damage your score. Your credit cards and other credit accounts will be immediately frozen and any available credit will be taken away.

Despite this, some debt solutions can write off a huge amount of what you owe and, in time, will give you a fresh financial start. Since your scores are likely to already be damaged from late repayments and accounts that are in arrears – you might find a debt solution doesn’t affect your score as much as you might think.


It’s possible that mistakes may occur in your credit report – and errors in your information could impact your score. If you’ve been refused a credit card or a credit limit increase, it may be worth doing a quick check to make sure an error relating to an account, products, a payment, or your information isn’t damaging your report.

What will improve your credit score?

These are things you can do that will improve your credit score, leading to a good credit rating:

Up to date information

Check that all your personal information is up to date with each of the credit referencing agencies. You can check your credit reports online – and it doesn’t take long to get in touch with them and correct any mistakes you see in your information.

A stable address and electoral roll history

If you’ve been at your address for a long time and you ensure your name is on the electoral roll, lenders will be confident that you are who you say you are when they do a credit check. It’s free to check you’re on the electoral roll – so it’s a great way to boost your credit rating.

Having debt/credit in the past

You can probably see how having previous credit would make lenders feel it’s a good idea to lend to you again. For example, if you’ve had a credit card and you’ve always made payments on time – a lender will be more confident you’ll use another credit card responsibly and make future account repayments on time again.

Low credit use

If you’ve got a good credit rating, you may find you can get lots of credit. If you’ve got access to this money but you don’t use it, a lender could see it as an indication that you’re managing your accounts and money effectively.

No missed payments

Information about overdue debt on your accounts will have a huge impact on your credit score – so if you pay on time, you’re likely to have a better score as a result and could have access to better credit card, loan, and finance deals.

Settled credit accounts

If you’ve had previous credit and your accounts are now completely paid off – this will have a positive impact on your credit file and your score.

Does having debt affect your credit score?

As you can see, debt has the ability to affect your credit score in a lot of ways. Certain types of debt will hurt your credit score and some kinds of debt will help you get a good credit score.

If you pay on time, use a sensible amount of credit, and ensure your personal details are completely accurate, your credit score will almost certainly be boosted.

If fallen behind on payments or you’ve got credit cards or credit accounts that are very close to your credit limit, you might find that your credit score starts to go down.

Even one late payment on one of your accounts can show on your credit file – and as such, it’s exactly this kind of debt that can quickly make your credit score drop.