Credit Score Basics > Does persistent debt affect credit score?

Does persistent debt affect credit score?

Wollit Team2 minute read · Updated 30th June 2024

Persistent debt is a common issue in the UK, and it happens when you pay more in interest, fees, and charges than you do towards your actual credit card balance. This can have significant implications for your credit score.

What is persistent debt?

Persistent debt is defined by the Financial Conduct Authority (FCA) as when a person pays more in interest, fees, and charges than they do towards their credit card balance over an 18-month period.

This can happen when you make only the minimum payments on your credit cards, leading to a prolonged period of debt and increased interest charges.

In other words, you’re paying interest and fees, but your debt is staying the same or, worse, growing.

How does persistent debt affect credit score?

Persistent debt can hurt your credit score in a few ways:

Making only the minimum payments on a credit card can lead to a prolonged period of debt, which can negatively affect credit scores. This is because credit scoring models consider the length of time it takes to repay debt, with longer repayment periods often resulting in lower scores.
Persistent debt often involves paying more in interest and fees than the actual balance. This can lead to a higher debt-to-income ratio, which doesn’t necessarily lower your credit score but it can reduce your affordability score, which is another thing that lenders look at. If lenders think you can’t afford more debt, they’re unlikely to approve your new credit applications.
High credit utilisation rates, often a result of persistent debt, can also lower your credit score. This is because credit scoring models view high utilisation rates (how much credit you’re actually using as a percentage of your total credit limit) as a sign that you’re struggling and might be a high risk borrower.

How can I get out of persistent debt?

To avoid the negative effects of persistent debt on your credit score, you need to take serious proactive steps:

Try to pay more than the minimum payment. This is the first thing you should do to reduce the amount of interest that you’re paying so you can clear the balance faster. You can get this done either by setting up a Direct Debit for a higher monthly amount or by making a larger one-off payment.
Create a budget to find expenses that you can cut back, and then use that money towards paying down the debt.
You should also seek help from organisations like StepChange and National Debtline, which offer free debt management advice and can help you put together a personalised plan to manage your debt.
In extreme cases the only way to get out of persistent debt is to enter an IVA (individual voluntary agreement) or bankruptcy. While this will stay on your credit report for six years and will lower your credit score significantly, it can be a solution that you shouldn’t dismiss.
If your persistent debt is the result of credit card debt, the best solution is to use a good balance transfer card with a long 0% interest balance transfer period. This can essentially put a pause on your interest charges and help you pay down your debt faster.

However, balance transfer cards with long 0% periods are usually reserved for people with good credit scores, which is why you should try to improve your credit score even if you're in persistent debt.

Luckily, now there are many apps that can help you build and improve credit.

One such app is Wollit. Wollit is an app available both on Android and iOS, and it works by reporting a fixed-fee monthly subscription as a loan repayment to all three credit reference agencies. This helps you build your credit history and directly influences your credit score.

Eventually, this will open the door for you to apply for balance transfer cards with long 0% interest periods (some go as high as 30 months), during which time you can catch up with the principal of what you owe and really get out of persistent debt.