Different debts and how they can affect your credit score

Falling into debt is an uncomfortable time for many, particularly when the debt equates to a large sum of money. Thinking of how you are going to pay the debt back can play on your mind, as well as the impact it could have on your credit rating.

There are many different types of debt that you can fall into, with the majority of people experiencing at least one at some point in their lifetime. It’s important to have an understanding of how your debt can affect your credit score, to assess the severity of the situation and begin building a plan to rid yourself of these financial issues.

We’ve highlighted the different types of debts below and how each of them can affect your credit score.

Bank & payday loans

Bank loans are often taken out to fund large expenses, such as a new car when the existing one goes kaput. Being approved for a bank loan is often determined by your credit rating, as is the interest you will pay on the loan.

Payday loans are usually seen as a quick fix for small but necessary unexpected costs. Many people choose to use them for their convenience and to tide them over until the next payday. These loans come with hefty interest rates and can cause significant financial difficulty over time, if you miss your repayment date.

If you are in debt with bank or payday loans, they will affect your credit score. Whilst they are seen as non-priority debts, in that the lenders cannot force you to pay, missed payments over time will show up on your credit file for at least 3 years and can reduce your credit rating.

Top tip: The type of loan you take out can also affect your financial stability. A bank loan is seen in a much more positive light than a payday loan. This is something to consider for future borrowings.


Although they are technically seen as a debt, pre-approved overdrafts are a fantastic safety net for financial emergencies. In fact, using a small amount of your overdraft and paying it back as quickly as possible is often seen as a positive, similarly to paying back credit card loans on time.

In general, overdrafts will not negatively affect your credit rating, so long as you are able to pay them back in a timely manner. However, if your current account provider issues you with an overdraft because you didn’t have enough funds to make a payment, this can impact your credit score.

Council tax arrears

Missing a few council tax payments will not affect your credit rating, as the local councils don’t tend to share information with the credit bureaus. However, it’s worth bearing in mind that this particular type of debt is known as a priority debt, because the council have the authority to prosecute if you take too long to pay your debts back.

Credit card debt

Credit card and store card debt can also impact your credit score’s health. If you use your card regularly but make payments on time, this behaviour can actually improve your rating. However, missing payments over time can reduce your credit score and your chances of being accepted for another loan or credit card application in the future.

Top tip: If you use a credit card on a regular basis, it’s wise to keep the amount you spend on it at less than 30% of the total credit limit you have been provided. Not only will this boost your chances of your credit limit being increased over time, it will also make your repayments smaller and easier to manage.


You can incur fines for a number of reasons, some of the most common being improper parking or not having a tv license. Fines are usually issued through the courts rather than by creditors and as such, they usually won’t affect your credit rating.

However, these types of fines are seen as priority debts, because the issuers can seek legal action, whether that’s through prosecution or through the use of bailiffs, if you refuse to pay the debt owed to them.

Mortgage and rent arrears

Paying back monthly fees on your mortgage or rent is crucial. Mortgage repayment arrears in particular, can cause problems for you, as this does affect your credit rating and your ability to take our future loans or mortgages in the future.

Rent repayments aren’t usually recorded by credit bureaus, unless it gets to the point where the landlord is forced to file the matter with the courts. As such, rent arrears should be seen as a priority debt and should be dealt with as soon as possible.

Top tip: If you are regularly paying your rent on time, take a look at the Rental Exchange Scheme, a free tool that can improve your credit rating with your monthly rental payments.


Differently bills can affect your credit score in different ways. In the past, utility bills didn’t have an impact on your credit score, however it’s been explained by Experian that some larger providers are now beginning to share information with the credit bureau. As such, it’s important to reduce any debts owed to your utility providers as quickly as possible.

The same goes for mobile phone bills. Whilst once they wouldn’t have had an impact, they can do now, depending on the provider. Rather than risking it, try to get yourself up to date with your repayments as soon as possible.

Other monthly bills such as gym memberships or tv subscription packages, currently won’t show up on your credit file, however this could change in the future.

Student Loan

Does your student loan affect your credit rating is a frequently asked question and the answer is no, it will not. Student loans are an imperative part of many university hopefuls, without which, most would struggle to fund their higher education.

Because student loan repayments are automatically deducted from your monthly salary, you cannot fall behind with repayments. It’s only technically considered a debt because of the money you owe.

If you’re looking to improve your credit rating without the worry of getting into further debt, consider signing up for an icount current account with prepaid MasterCard. The account offers a safe and convenient way of managing your finances, as well as an integrated credit builder that will see you on your way to bettering your credit score.

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