Can my debt affect the credit rating of those I live with?

August 1, 2017

If you’re worried about the effect that your debt might have on the people you live with, it’s worth knowing that credit files are independent of each other unless there is, or has been in the past, a specific financial link such as a joint loan.

This linking is called financial association, and occurs naturally when you take out joint borrowing. If someone you live with acts as a guarantor for you, this also links you financially. Joint financial activity doesn’t only mean loans and credit, however.

It can sometimes involve sharing responsibility for household bills such as utilities or broadband. Your own credit file, and that of the person you’re linked with, will both show the contract or borrowing facility, plus the fact that you’re financially connected.

Credit ratings aren’t affected if you’re not financially linked

It used to be the case that credit checks were made on addresses rather than people, but that has now changed. An agreement between lenders and the Information Commissioner now means that anyone living at the same address is not automatically linked simply because they live with each other.

If you have no specific financial connection, there’s no need to worry about your current debt situation affecting anyone else financially. But what effect does it have if there is a financial association?

Credit checks on financially linked individuals

When the person you’re financially connected to makes an application for borrowing, the lender may take into account your credit history as well as the applicant’s. Lenders aren’t obliged to disclose in detail how they’ve reached their decision, and use different criteria for making their decision.

But there is a facility that is offered by some credit providers to ‘opt out’ of this arrangement and have the application scored using only the applicant’s details, with no reference to anyone they’re financially linked to.

This might be an option if you’re concerned that your debt situation might affect someone you live with, otherwise a request for financial disassociation could be a viable option.

Financial disassociation and boosting your credit rating

It is possible for you or the person with whom you have a financial link to financially ‘disassociate’ from each other, as long as all joint borrowing has been repaid. This lets the credit reference agencies know that you no longer have a financial connection, and might ease any concerns about your poor financial position.

A note of County Court Judgements (CCJs) and formal debt solutions such as the Debt Arrangement Scheme and Scottish Trust Deeds, remain on a credit file for six years. But there are ways in which you can boost your credit rating once you’ve been discharged.

Rebuilding a poor credit rating

Credit builder credit cards and pre-paid credit cards allow you to build up a decent credit rating slowly over time, as long as you repay your balance in full each month. Although the interest associated with these types of card is very high compared with ‘standard’ credit cards, regular repayments demonstrate that you’re more in control of your finances, and are taking steps to improve the overall situation.

Checking that the information held by the credit reference agencies is correct is also a good idea, and in particular, that any note of default remaining after six years is removed.

Scotland Debt Solutions can provide more guidance and practical support if you’re struggling with debt. We have been successfully helping residents of Scotland to escape debt since 1989, and work from five offices around the country. Call one of the team for a free same-day appointment in complete confidence.

John Baird

Insolvency Adviser

Tel: 0800 063 9250

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