What Contributes to and Affect a Debtor’s Credit Score? – IVA Experts

Credit score is the first thing that lenders look into while deciding to give someone the required loan. It’s important because creditors need to know whether or not the borrower can pay it off easily. So, it cannot be an easy thing to borrow money with a bad credit score. However, if you are having a good credit score you will not only get a loan on easy terms of repayments and with lower interest rates. Another perk of a well-maintained credit reputation, you can easily go for the suitable best debt management plan in UK that will help you pay off your loans with affordable monthly payments.   

Before this all, you must know about what parameters your credit score depends. There are multiple things that can affect your credit score.   

Your payment history is the key factor that affects your credit score. This includes, but not limited to your credit cards, utility bills, mortgages, and personal loans.

There is a common misconception that informal debt solution agreements leave a negative impact on your credit reputation. Actually, it is one of the things that does not affect your credit score. Let’s see what else will not affect your credit reputation.  

• Age, religion, ethnicity
• Occupation and salary
• Employment history 
• Student loans
• Where you live
• Marital status
• Number of children
• Informal debt solutions

The main factors that actually contribute to and affects an individual’s score are listed on his credit report. Remember, a debtor with poor credit score may not be eligible to enter into an Individual Voluntary Arrangement. So, you must consider all such things before taking a loan or dealing with your creditors to pay off. Here’s the list of all those things that can make or break your credit reputation.

Credit Cards: Your credit card payment history and loans you already have on your record.

Utility Bills: The amount you pay every month to your water, gas, and electricity providers.

Personal Loans: The personal loans usually to quickly meet your financial shortfalls will impact your score.

Mortgages: Featured on your report, it is one of the biggest credit products with payment history that lenders can view and make a decision of giving you the loan or not.

Mobile Phone Contracts: Categorized as your credit deals, your phone contacts with the telecom service provider and payments you make will be listed on your credit record.

Car Finance: Your credit record will also have the information about the personal contract plan agreement with a car manufacturer or any other financial deal for your vehicle.  

Last but not the least is ‘buy now and pay later’ credit agreements that are any kind of financial contract you enter into, especially when it comes to store cards and that may also include repayment schemes. So, always use your credit and store cards wisely and never get trapped into credit products. In any such situation, you must get free debt advice from certified financial advisors as ours at IVA Experts UK.   

Manage Debt-to-Income Ratio for Increased Financial Stability -IVA

Financial stability is mandatory for living with an absolute peace of mind. This might not be possible if you owe thousands of pounds to creditors (from credit cards, loans, etc). The situation may get worse if you are struggling to repay. Now you must be looking for a much more manageable repayment structure. Simply put, you need a money saving expert for saving and building a secure future.

Nearly all debt solutions depend on debtor’s monthly income and expenses, except bankruptcy that is the most a drastic way to get rid of your debts.

If you have ever applied for a loan, you may have heard about the debt-to-income ratio. It’s the portion of your income that goes into monthly debt repayments. It’s the primary component of your credit worth. Therefore, whenever you ask a lender for a loan, he will consider your credit score along with the debt-to-income ratio before approving your request. It’s important because it helps increase your personal financial stability.

Just like you can use an IVA calculator to check how much you can write off on your debts, you can also calculate your debt-to-income ratio. All you need is to divide all monthly payable debts by your monthly gross income. Remember, it will not include your utility expense and insurance bills. For instance, you have the following monetary scenario.

Let’s say your gross monthly income is £3450 and total monthly debt payments (e.g. £200 car payment, £55 minimum credit card payment, and £800 mortgage payment) is £1055.

In this case, your debt-to-income the ratio will be 30% (£1055/£3450)

It seems an ideal situation because nearly all the lenders prefer this debt to income ratio below 36%. They take it an indicator about your financial capacity of paying off your debt.

Lower the ratio, more money you have than what you actually owe. It means you are having enough resources to pay off your loan. In contrast, higher the ratio you are more likely to fall behind on your debt repayments and possibly default on the debt that may eventually lead to bankruptcy. For better understanding, you can get debt help UK from a reliable debt solutions provider.

How to manage a high debt-to-income ratio?

You need to manage your financial stability by increasing credit worth if your debt to income ratio is too high. Here’s how you can do this;

• Try increase your overall monthly income. Find supplementary ways to capitalize on your skills and get one more job.
• Demand a raise or switch to a better paying job. Remember, you must include your partner’s income if you have joint debts.
• Try to reduce your monthly debt repayment load. The easiest way for this is to pay off your credit card balance.
• Another easy debt to eliminate is your car loan with a low balance.
• Apply for Individual Voluntary Arrangement, or consolidate your debts into one loan to lower the repayment amount.    
• Don’t take new debt until you clear previous ones or reduce what you owe to the creditors. 

This is how you can easily manage your debt to income ratio that will help you increase your financial stability that’s necessary for a secure future.   

For more affordable repayments and stopping creditors hassling you, get free debt advice from licensed insolvency advisors as ours at IVA Experts UK.