How a Step Change Could Affect Your Credit Score

Engaging with a debt charity like Step Change is a positive step towards financial recovery, but it's essential to understand the potential, often temporary, impact on your credit score.

1. Initial Contact: Simply reaching out to Step Change for advice has no effect on your credit score. Your credit file is only impacted if you proceed with a formal debt solution.
2. Entering a Debt Solution: If you start a Debt Management Plan (DMP), your creditors will be notified. They will likely mark your accounts with an 'arrangement to pay' flag, which lowers your credit score.
3. During the Plan: While making reduced payments through the DMP, these markers will remain on your credit file. Your ability to obtain new credit will be restricted, and your score will stay low during this period.
4. Plan Completion: Once you complete the plan, your accounts are marked as 'satisfied' or 'settled'. However, the record of the DMP and any defaults will remain on your credit file for six years from their start date.
5. Rebuilding Phase: After completion, you can begin to rebuild your credit. As the negative marks age and eventually disappear after six years, your score will gradually improve with responsible financial management.

How Much Will Step Change Affect Your Credit Score?

The impact of using Step Change on your credit score depends on the specific debt solution you choose. Here are the key considerations for how your credit file may be affected in the short and long term.

• Debt Management Plans: A DMP will likely lower your score initially since you are paying less than originally agreed. However, this shows you are proactively managing your debt, which is better than defaulting on payments entirely.
• Formal Insolvency Solutions: An IVA or bankruptcy has a severe, long-term negative effect on your credit score. These solutions stay on your credit file for six years, which will significantly limit your access to future credit.

How You Can Avoid Step Change Affecting Your Credit Score

Contact Creditors Directly

Consider negotiating directly with your creditors. You may be able to agree on a temporary payment plan without a formal arrangement. This informal agreement might not be reported to credit agencies in the same way as a formal Debt Management Plan, potentially preserving your score.

Explore Debt Consolidation

A debt consolidation loan could be an option if your credit is still in good shape. This combines multiple debts into a single loan, often with a lower interest rate. It simplifies payments and can be less damaging than a formal debt solution.

Create a Strict Budget

Proactively creating and sticking to a strict budget can help you manage repayments independently. By cutting expenses and prioritizing debt, you can avoid the need for third-party intervention altogether, thus protecting your credit file from any negative marks associated with debt solutions.

Ways to Improve Your Credit Score

No matter your current standing, improving your credit score is an achievable goal that hinges on consistent, positive financial habits. With proven methods, most people can see meaningful improvements in just a few months, unlocking better loan terms and financial opportunities.

• Monitor your credit reports. You are entitled to free credit reports from the major bureaus, so review them regularly to spot and dispute any inaccuracies that could be dragging down your score.
• Set up automatic bill payments. Your payment history is a huge factor in your credit score, and automating payments ensures you never miss a due date.
• Lower your credit utilization ratio. Aim to use less than 30% of your available credit by paying down balances or requesting a credit limit increase on existing cards.
• Become an authorized user. Being added to the account of a trusted person with a strong credit history can give your score a boost, provided the issuer reports it to the credit bureaus.
• Limit applications for new credit. Each application can result in a hard inquiry that temporarily lowers your score, so space them out and use prequalification tools when possible.
• Diversify your credit mix. Lenders like to see that you can responsibly manage different types of credit, such as credit cards and installment loans.

The Bottom Line

While Step Change doesn't report to credit agencies, the debt solutions they arrange will be recorded on your credit file and will almost certainly lower your credit score for a time.

Frequently Asked Questions

Will using StepChange's services directly harm my credit score?

No, simply receiving advice from StepChange will not impact your credit score. However, the debt solutions they recommend, like a DMP or IVA, will.

How long will a debt solution from StepChange affect my credit file?

A debt solution, such as a Debt Management Plan, will typically stay on your credit file for six years from the date it starts or is settled.

Can I rebuild my credit score after a StepChange debt solution?

Yes, once your debt solution is complete and has been removed from your file, you can begin rebuilding your credit score through responsible borrowing habits.