How a DRO Could Affect Your Credit Score

A Debt Relief Order (DRO) will negatively impact your credit score. It is a formal insolvency solution that remains on your public record and credit file for a significant period of time.

1. Public Record Entry: Once your DRO is approved, it is recorded on the Individual Insolvency Register. Credit reference agencies pick up this public information and add it to your credit file.

2. Credit Score Impact: The appearance of a DRO on your file will cause a significant drop in your credit score. Lenders view it as a serious indicator of credit risk.

3. The Moratorium Period: For the 12 months of the DRO, you are protected from creditors, but your ability to obtain new credit is severely restricted. This lack of credit activity also affects your score.

4. Six-Year Duration: The DRO will remain on your credit file for six years from the date it was approved. Throughout this period, it will be challenging to get approved for mortgages, loans, or credit cards.

5. Post-DRO Recovery: After six years, the DRO is removed from your credit file. At this point, provided you have managed any subsequent finances responsibly, you can begin to meaningfully rebuild your credit score.

How Much Will a DRO Affect Your Credit Score?

The exact impact a Debt Relief Order (DRO) has on your credit score depends on your individual circumstances, but there are several key points to consider.

• Credit Score Drop: A DRO will cause a significant drop in your credit score. This signals to lenders that you have been unable to repay your debts as originally agreed upon.
• Length of Impact: The DRO remains on your credit file for six years from the date it is approved. After this period, it is removed and its direct impact on your score will cease.
• Difficulty Obtaining Credit: You will find it very difficult to get new credit while the DRO is active. Most lenders will be unwilling to offer loans or credit cards during this six-year period.

How You Can Avoid a DRO Affecting Your Credit Score

Negotiate Directly with Creditors

Before considering formal insolvency, try contacting your creditors directly. You may be able to negotiate a temporary payment reduction or an interest freeze. This proactive approach can sometimes prevent the need for a DRO and lessen the immediate impact on your credit file.

Consider a Debt Management Plan

A Debt Management Plan (DMP) is an informal agreement to manage your non-priority debts. While it can appear on your credit file, it is generally viewed less severely than insolvency and offers a structured way to repay what you owe over time.

Seek Free Debt Advice

Organisations can offer free, impartial advice on your situation. A professional advisor can review your finances and help you explore all available options, ensuring you choose the solution that best protects your long-term financial health and credit rating.

Choose the Right Card to A DRO

Fortunately, it's always possible to improve your credit score, a crucial step that can significantly boost your financial health. With consistent, positive financial habits, most people can see meaningful changes within a few months.

• Monitor Your Reports: Regularly check your credit reports from all three major bureaus—Experian, TransUnion, and Equifax. This helps you spot and dispute any inaccuracies or signs of identity theft early on.
• Automate Bill Payments: Set up automatic payments for all your bills to ensure you never miss a due date. Your payment history is the single most important factor in your credit score.
• Lower Your Credit Utilization: Aim to keep your credit utilization ratio—the amount of credit you're using compared to your total limit—below 30%. You can achieve this by paying down balances or requesting a credit limit increase.
• Become an Authorized User: Ask a family member with a strong credit history to add you as an authorized user on one of their accounts. Their good habits can positively impact your score, provided the account reports to all major bureaus.
• Diversify Your Credit Mix: Lenders like to see that you can responsibly manage various forms of debt. Aim for a healthy mix of different types of credit, such as revolving credit (credit cards) and installment loans (auto or personal loans).
• Limit Hard Inquiries: Avoid applying for too many new credit accounts in a short period. When shopping for a loan, submit all applications within a 14-30 day window so they are treated as a single inquiry.

The Bottom Line

A Debt Relief Order will impact your credit score as it remains on your credit file for six years. During this period, you may find it more difficult to borrow money.

Frequently Asked Questions

How long will a DRO stay on my credit report?

A Debt Relief Order remains on your credit report for six years from the date it was approved, even though the DRO period itself is 12 months.

Can I get credit after a DRO?

Yes, but it will be challenging. Lenders view a DRO as a significant risk, making it difficult to be approved for credit for six years.

How can I rebuild my credit score after a DRO?

After your DRO ends, focus on responsible borrowing with credit-builder cards, ensure all bills are paid on time, and register on the electoral roll.