If you've got a debt relief order (DRO) or have had one in the past, it will affect your credit rating. This could mean you find it more difficult to get credit in the future.
This page explains what you need to know about how a DRO could affect your credit rating.
Your bank account
The Official Receiver won't tell your bank about your DRO, unless your bank is listed as a creditor. But some banks automatically check whether any of their customers have been given a DRO.
If your bank is included in your DRO or it finds out you have one, it's up to them to decide whether to freeze your account or let you open a new one.
What is your credit rating?
When you apply for a loan or other type of credit, the credit provider will search your credit reference file to see how much of a risk it is to lend to you. The level of risk is known as your credit rating. It can be affected by your personal financial details including:
how you've managed existing bank accounts and credit commitments
whether you've ever had your home repossessed
people you're financially linked to.
More about your credit reference file and credit rating
Will a DRO show up on your credit file?
Your DRO will show up on your credit reference file. It can reduce your chances of getting credit from some lenders, as it shows you've struggled to keep up repayments before.
You're not allowed to get credit for £500 or more without telling the lender that you have a DRO. A lender might change their mind about offering you credit, when they see a DRO registered on your credit file.
The note of your DRO stays on your credit file for up to six years after the date the DRO was made. This means it could be some time before you can get credit in the future.
You might also struggle to open a new bank account during the DRO period and for some time after it has ended.
If you need a new home while you've got a DRO, you could find that your options are limited. Many private landlords and letting agencies will insist on credit checks when you apply for a tenancy, and because the DRO will show up on your credit report, you may be turned down or charged higher fees.
If you're not comfortable with how a DRO can affect your credit rating, you might want to think about a different debt solution.
Options for dealing with debt
Checking your credit file
Your credit reference file is held by the three credit reference agencies. You can check what information the credit reference agencies are holding about you and change anything that is wrong.
More about how to get a copy of your credit reference file
Next steps
FAQs
A DRO will impact your credit record for a period of six years. This is because your credit report looks back over the past six years of your borrowing history. A DRO will therefore impact future credit applications. When you apply for credit, companies look at your credit information to decide whether to lend to you.
Does debt forgiveness affect credit score? ›
While credit card debt forgiveness can offer a path out of overwhelming debt, it's not without its drawbacks. The impact on your credit score can be significant, potentially affecting your ability to obtain credit, secure favorable interest rates or even rent a home in the near future.
Does debt settlement affect your credit score? ›
Debt settlement typically has a negative impact on your credit score. The exact impact depends on factors like the current condition of your credit, the reporting practices of your creditors, the size of the debts being settled, and whether your other debts are in good standing.
What are the disadvantages of debt relief order? ›
Disadvantages of Debt Relief Orders
- There are tight income, asset and debt restrictions on who can apply for a DRO.
- If your circ*mstances change, you may still be required to repay your creditors.
- Your debt relief order will appear on your credit file for six years.
Debt settlement cons
Debt settlement companies can charge fees. The creditor may require you to close the account, which will result in losing access to that credit line. The amount of forgiven debt may be considered taxable income by the IRS, so there may be tax implications.
How long are you blacklisted after a debt relief order? ›
A DRO stays on your credit file for six years from the date it is approved. It may be hard to take out credit during this time.
What are the dangers of debt forgiveness? ›
Downsides of debt forgiveness
The forgiven debt may show up as settled accounts on the credit report, which means the lender accepted less than the full payment for the loan. A debt settlement also causes your credit score to be lowered for years before and after because of the missed payments and settlement.
How long does debt relief hurt your credit? ›
"Credit card debt forgiveness or a settlement typically remains on your credit report for around seven years from the date the account first became delinquent," explains Michael Broughton, founder and CEO of the credit building app, ALTRO.
Is debt relief a good idea? ›
If your debt load has become unmanageable, debt relief is worth considering. Just be sure to explore your options, including any interest and fees you might incur. And once your debt is gone, create a budget and savings plan to ensure you never wind up in a similar situation again.
How long after debt settlement can I buy a house? ›
The timing varies depending on individual circ*mstances and the lender's policies. Generally, individuals may need to wait at least 2 years after completing debt settlement before applying for a mortgage. During this time, it's essential to focus on improving credit and demonstrating financial responsibility.
Which Is Better: Paying in Full or Settling? It's better to pay off a debt in full than settle when possible. This will look better on your credit report and potentially help your score recover faster. Debt settlement is still a good option if you can't fully pay off your past-due debt.
Can I still use my credit card after debt settlement? ›
Conversely, keeping older accounts open with low balances can potentially benefit your credit profile over time. To start rebuilding credit: Responsibly using a credit card after a debt settlement can help you rebuild your credit over time.
Can you get credit after a debt relief order? ›
The note of your DRO stays on your credit file for up to six years after the date the DRO was made. This means it could be some time before you can get credit in the future. You might also struggle to open a new bank account during the DRO period and for some time after it has ended.
Will a debt relief order affect my bank account? ›
Bank accounts
After a DRO has been approved, your bank may stop letting you use your current bank account. If this happens, speak to your debt adviser to find out what options are available. Your debt adviser may be able to help you set up a new bank account which is not related to any of your debts.
What is the maximum debt for a debt relief order? ›
A debt relief order (DRO) is one way to deal with your debts if you: owe £50,000 or less. don't own your own home. don't have other assets or things of value.
How long after a debt relief order can I get credit? ›
The note of your DRO stays on your credit file for up to six years after the date the DRO was made. This means it could be some time before you can get credit in the future. You might also struggle to open a new bank account during the DRO period and for some time after it has ended.
Does debt mediation affect your credit score? ›
Debt mediation will lower your credit score in the short-term. Furthermore, if you stop paying the credit providers during this process, they will continue to report you to the credit bureaus.
How do I improve my credit score after a DRO? ›
How can I improve my credit score after a DRO?
- You keep up with all agreed payments on your debts, including: Mobile phone bills. Credit cards.
- All the details on your credit score are correct, such as where you live.
- You register on the electoral roll where you live.
