The days are getting shorter, the nights are drawing in and thoughts...
I don’t want my credit rating to be affected!
Working at StepChange Debt Charity, we often see clients going through a rollercoaster of emotions, a lot of it based on a fixation on their credit rating.
There’s the guilt for overspending and not realising the problem earlier; worry about what the banks can and can’t do; embarrassment about needing help with debt in the first place; anger at the banks and relief at finding a debt solution.
In an attempt to try and avoid some of these emotions, we often hear of the ‘ostrich effect’, which usually only makes the situation worse. In most cases our clients have already passed this stage once they start speaking to us.
However, more commonly we hear differing reactions to how a debt solution can affect their credit rating. This isn’t the best thing to focus on when you’re drowning in debt.
Some clients have had such a bad experience with debt that they never want to touch credit again. Rather than take the risk of not being able to maintain payments and ending up in a similar situation they prefer to save for items in advance.
On the other hand we frequently speak with people who want to save their credit file no matter what; even when it’s pretty much past the point of disrepair!
Solution in disguise
A lot of people think that debt consolidation is the answer to their debt problems (we’ve previously blogged about the disadvantages of debt consolidation). The main temptation can be to reuse credit which has already been cleared, dropping you into the dreaded debt spiral.
But saving your credit file shouldn’t be a reason to opt for debt consolidation. If you’re already struggling and credit is maxed out, having a positive credit rating wouldn’t matter because you shouldn’t be looking to take out more loans.
My circumstances aren’t that bad
Although we speak to people that realise they need debt help, our advice is not always welcome. During our last debtday tweetathon, 20% of the clients advised that day were recommended some form of insolvency (an IVA or bankruptcy, for example).
This can be a great shock for someone that didn’t realise that this would be an option for them. Frequently, the primary reason for not wanting to accept a debt solution is because of the adverse affect that it has on their credit rating.
Although a formal solution like bankruptcy will stay on your credit file for six years the health of your credit file isn’t reason enough to avoid it when it’s recommended as the best solution.
Even if the main reason for saving a credit file from bankruptcy is to secure a mortgage (a frequent justification to turn down formal proceedings), the first step in buying a house is to save for a deposit and that’s not an option while debts still exist.
There are obvious positives for having a positive credit rating, but the overriding priority should always be to concentrate your debts first.
Think it through
No matter what solution is recommended for you, it’s important that you weigh up all the options and consider the implications. Is your credit rating really that important? Or is it better to bite the bullet and take the debt advice that’s recommended for your situation?
There is lots of useful information about credit files including how they work and how to improve them, but remember it’s not worth struggling to save your credit file. Try Debt Remedy to help you find a solution to your debt problem.