• Find out how debt can be controlled.
  • Understand the impact debt can have on your credit score.

Read time

13 mins

Chapter 1


Read time

2 mins

Most of us will need to take on debt at some point in our lives – whether it’s a student loan, a credit card or a mortgage. Borrowing can help us get what we need without having that money in the bank. It isn’t necessarily a problem but should be done after careful consideration. It’s never too late to take control of your debt.

The first step is to understand your debt, and how you can start to pay it off. The minimum amount you need to meet credit card debt repayments is calculated from a percentage of your balance – plus interest, fees and charges. If you don’t make any further purchases, transfers, cash advances or face any fees, then this minimum payment should begin to reduce as you pay your balance off.

If you can afford to, you could look to pay more than the minimum every month. It can make a big difference by helping you pay off your balance quicker. Paying this off quicker helps you save money by potentially paying less interest and may help improve your credit score too. Fix your repayments to more than the minimum, or make extra payments now and then, to make sure your account continues to move out of debt.

Two possible approaches to dealing with debt are:

  • Target debt with the highest interest rate. By paying this debt off first, it helps you save the most money in interest charges over time. It's often the faster way to conquer your debt.
  • Closing out your smallest balances first. It can help you build momentum when the number of different debts reduce, so you stick with your debt repayment plan.

If you’re struggling with the emotional impact of dealing with debt, you can view our dedicated mental health support page.

Chapter 2


Read time

3 mins

A debt emergency is when you’re facing eviction from your home, bailiff action (when official officers remove your belongings and sell them to repay the money you borrowed), being taken to court, or having your gas or electricity cut off.

What could cause a debt emergency?

These repayments and bills could lead to a debt emergency if they are not paid:

  • Income tax
  • National insurance
  • Value added tax (VAT)
  • Mortgage or rent
  • Council tax
  • TV license
  • Child maintenance payments
  • Gas and electricity
  • Loans secured against your home
  • Hire purchase agreements (where you hire an item until you have paid for it in full)
  • Payments to the Department of Work and Pensions (DWP)
  • Payments to His Majesty’s Revenue and Customs (HMRC)
  • Court fines

If you are facing a debt emergency, you should get free and independent advice immediately. Visit MoneyHelper for an advice locator.

Chapter 3


Read time

3 mins

A credit score is a way that a credit reference agency can score you on how trustworthy you are when it comes to borrowing and repaying money. This score is used to help banks and money lenders decide how much money they are comfortable lending to you. Having a better credit score gives you a better chance to get approved for credit cards, loans and mortgages.

The way you manage your debts affects your credit score. If you’ve borrowed money in the past and always kept up with repayments, it will have had a positive impact on your score. But a history of missing or late payments will have had a negative impact.

People who borrow money and repay the debt as agreed often have a better credit rating than those who choose not to borrow. They’ve shown to banks and other institutions that they can be trusted to borrow and manage debt.

You can access your credit score online from a credit reference agency for free. Be aware it is likely you may be offered a paid subscription, but you should still be able to access your credit report for free without needing to pay.

There are three main credit reference agencies that are used in the UK:

Chapter 4


Read time

3 mins

Your credit score, your credit report and your credit history are what lenders use to decide if they will let you borrow money. Your credit history is information about how you have managed your money and repayments in the past, and it makes up part of your credit report.

Here is a list of things that can affect your credit score and your credit history, positively and negatively.


Bank account

If you have access to a bank account in your name, it shows the credit reference agencies and lenders that you can manage your money. If you don’t have a bank account in your name, the credit reference agencies and lenders can’t see if you have money coming in and they can’t see if you’re able to pay back money you borrow.


Direct Debits

When you have direct debits set up (automatic payments for bills), it shows the credit reference agencies that you’re able to manage your money and pay your bills. If you don’t have direct debits set up, it might look like you aren’t paying any bills, that you can’t repay money you have borrowed, or that you don’t use your bank’s features to manage your money.


Missing Payments

If you miss repayments on money you have borrowed, or if you miss a payment on a bill, you are more likely to see your credit score go down because the credit reference agencies and lenders see you as a risk – that they may not get back the money you borrowed from them. If you make repayments and pay bills on time, it shows the credit reference agencies and lenders that you are reliable and able to manage your money. Your credit score will go up.


Electoral Register

Credit reference agencies and lenders will use the electoral register to check that you live where you say you do when you apply for credit.

  • If your current address and where you are registered on the electoral register are different, your credit score will go down.
  • If you move to a new house, make sure you contact your local Electoral Registration Office to update your address on the electoral register, so your credit score doesn’t go down.
  • If you have no fixed address, you won’t be on the electoral register so you’ll need to make sure the other information about you in your credit report is correct so that your credit score is as high as it can be.


Financial Links

When you get credit with someone else (such as a partner, sibling or parent) for a credit card, loan or mortgage, your credit histories are linked together. If that person does something to make their credit score go down, yours might go down too.


Wrong credit history

If the information in your credit report or history is wrong, or information is missing, and making your credit score lower than it should be, you can ask the credit reference agencies to check – this is called a ‘dispute.’ You can also do this if information has been on your credit history for too long.

Dispute your credit history with ExperianEquifax or TransUnion.

After raising a dispute, if the information on your credit report can’t be changed, you can ask the credit reference agency to add a ‘notice of correction.’ This is a short statement you write which will be attached to your credit report for any lenders to see when you apply for credit.

Chapter 5


Read time

3 mins

Credit is when you borrow money, goods or services from a lender, with the understanding that you’ll pay what you owe later. Lenders can be banks or private firms that loan you money. This is usually paid back in regular instalments at an amount agreed before you borrow the money. Most lenders will also charge you interest based on a percentage of what was borrowed or a set fee, on top of your repayments.

Credit cards, loans and overdrafts

A credit card is an account with a credit allowance, meaning it provides you with money you borrow and will pay back. The total amount you can borrow is called your credit limit. Your credit card account is separate to your bank account and can be issued by banks, finance companies and some retail shops.

The money you spend is borrowed from the card provider, rather than taken from your bank account. Most lenders will also charge you interest to borrow this money. You can use credit cards to pay for goods or services in shops and online, and they can let you spread the cost for large purchases. Using a credit card effectively can help build your credit score.

A personal loan is a single amount of money paid into your bank account. You borrow this from a lender and you need to pay it back by an agreed time. The amount you can borrow is set by the lender and is based on your circumstances. Personal loans are issued by banks and finance companies.

Most lenders will charge interest to borrow the money, and if you don’t pay back the money and interest on time, you might not be able to get more credit in the future. You can use the money from a loan to buy goods and services, just like you would use money in your bank account normally. Personal loans are typically used for larger purchases than those made on a credit card.

An overdraft lets you borrow money through your bank account by taking out more money than you have in your account. This is sometimes called being ‘overdrawn’ or ‘going into your overdraft.’ There is usually a charge for this, and you can agree the size of your overdraft with your bank. An overdraft should be used for short-term borrowing and emergencies only, and will usually have a rate of interest applied to it.

Other types of borrowing

Now you’ve seen the most common types of borrowing, let’s take a look at some more.


  • Payday loans are when you borrow a small amount of money (usually no more than £1500) over a short period of time (usually a month) to cover emergency costs until your next pay day. These types of loans are an expensive way to borrow. Never take out a payday loan unless you're certain you can repay it on time and in full – otherwise, the costs can soon spiral out of control.

    The interest rates and fees for a payday loan are very high and very strict, so it is best to check if another type of credit, or if support from your bank, would be more suitable before you apply for one.

  • Buy now pay later (also called BNPL) is an agreement to buy a product and pay for it later. You might hear this called buying 'on credit'.

    Your repayments might be paying for the item in full, or you could spread them out and pay in instalments.

    Most lenders will charge interest and fees for this type of borrowing. BNPL is becoming common both in shops and online. It is important to make repayments on time to avoid penalty fees and charges, and damaging your credit score.

    It is also important to keep track of how many agreements you have (and which companies they are with). Whilst buying something you can't afford and paying later may seem tempting, it can be a slippery slope to buying more than you are able to repay.

  • A pawnbroker is someone who will lend you money in exchange for you leaving a valuable item with them for usually at least six months. This could be jewellery, a games console or furniture. The pawnbroker would only lend you what the item is worth if they were to resell it. You can make an agreement with the pawnbroker; they can keep hold of the item and you repay the money to get it back or you can keep the money and they sell the item. Pawnbrokers will charge you interest which you will pay along with the repayments.

  • Some shops offer their customers credit accounts known as store cards. They are usually offered when purchasing a product and can include an incentive like 10% off your purchase. Store cards can only be used to purchase goods from that shop (or chain of shops) and most lenders will charge you interest and fees for using a store card if you don't pay it all back when you get your statement.

    There are two types of store card account:

    1. A monthly account where you are charged interest if you don't repay everything in full at the end of the month (this is similar to a credit card).
    2. A budget account where you repay a regular amount each month to pay off the cost of goods bought throughout the year (this is similar to a loan).
  • A credit union is a group of people who have decided to put their savings together to lend money to other people in their group. You must be part of a credit union group to use a credit union for borrowing. You can find out more about borrowing from a credit union by visiting the MoneyHelper website. Because the group members are connected, they charge a low interest rate. This can mean that a credit union could be a cheaper option than other forms of credit.

  • Equity release is when you borrow against the value of your home (if you own all or part of your home) without having to sell your home and move out. Sometimes this is called 're-mortgaging'. There are different types of equity release schemes but all of them will charge interest on the money borrowed. In some schemes, the money borrowed is repaid much later when the house is sold, because the homeowner died, or moved into a care home. In other equity release schemes, you sell your house but remain in it as a tenant, paying rent.

Depending on your circumstances, you may also be entitled to receive financial support through Universal Credit. To find out more about what this is, check if your eligible and for details on how to apply online, visit our ‘Accessing universal credit online’ section.

Scottish Widows Be Money Well is committed to providing information in a way that is accessible and useful for our users. This information, however, is not in any way intended to amount to authority or advice on which reliance should be placed. You should seek professional advice as appropriate and required. Any sites, products or services named in this module are just examples of what's available. Scottish Widows does not endorse the services they provide. The information in this module was last updated on 11th September 2023.


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