Credit Score Basics > Does cancelling direct debit affect credit score?

Does cancelling direct debit affect credit score?

Wollit Team1 minute read · Updated 16th September 2024

Yes, cancelling a direct debit can actually affect your credit score if not done correctly. Here is how it works and what’s the right way to go about it.

What is a direct debit?

A direct debit is basically an arrangement that allows a company to withdraw funds directly from your bank account on a specified date.

This payment method is most of the time used for recurring payments such as utility bills, subscriptions, and loan repayments.

Setting up direct debits for regular payments can help ensure that bills are paid on time. These timely payments are what matters most to your credit history, which is what matters most for your credit score.

How can cancelling a direct debit affect my credit score?

The straightforward answer is that cancelling a direct debit itself does not directly affect your credit score.

However, cancelling a direct debit without letting the other party know can lead to missed payments. If a payment is missed and reported to credit reference agencies, then it immediately lowers your credit score. And even a single late payment can hurt an otherwise great credit history.

How should I cancel a direct debit so my credit score is safe?

When cancelling a direct debit, inform both your bank and the other company (bank, utility company, etc). If you don’t, they might attempt to collect payments.

Also, if the direct debit is linked to a contract (for example, a gym membership or a loan), simply cancelling the direct debit does not terminate the contract. You may still be liable for payments, and if you fail to pay, the service provider could pursue you for the outstanding amount. This could lead to a County Court Judgment (CCJ), which would damage your credit score much more.

Finally, if you cancel a direct debit close to the payment date, you may miss a payment. To avoid this, try to cancel the direct debit well in advance so that any outstanding payments are settled before cancellation.