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Do Direct Debits Affect Your Credit Score?

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Last editedMay 20222 min read

In simple terms, your credit score is a rating which is associated with you as an individual, and which lenders will use to evaluate your ability to pay back any money borrowed fully and on time. It will be used by lenders – from banks to credit card companies and mortgage providers – to decide how much of a risk lending money to you will be, and the details of your credit score could impact everything from the interest rate you are charged to the amount you are able to borrow. In some cases, a poor credit score could even result in you being unable to borrow money at all.  

One of the best ways of building your credit score is to obtain credit in the first place. While saving for the items you need to purchase has traditionally been seen as the sensible way of funding spending, obtaining credit and then paying it back in full is one of the best means of maintaining a healthy credit score. There are no hard and fast rules about how credit scores are calculated, since many different companies compete via the use of their own systems, and for this reason the best advice for anyone concerned about the possibility of having a poor credit score is to ensure that their finances are as carefully controlled and well organised as possible. The companies which calculate credit scores will often use information such as whether bills have been missed or paid late, and even a single late payment could have a damaging impact on your credit score. For that reason it’s important to use payment tools such as direct debits to organise bill payments, rather than assuming you’ll always be able to remember. 

How direct debits could help your credit score

Setting up direct debits to pay things like utility bills can have a positive impact on your credit score. With direct debits in place there is no chance of forgetting to pay a bill on the due date, so late payments won’t be an issue. Even a period as relatively short as six months, during which you meet all bills due on time, could be enough to start lifting your credit score.  

The automated nature of direct debits will ensure not only that your bills are paid, but also that they are always paid on time. One particularly effective method of boosting your credit score is to pay down any outstanding balance on your credit card. Setting up a direct debit to pay a minimum amount each month will make this process simple to manage and highly effective. 

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Does cancelling a direct debit affect your credit score?

One of the most convenient aspects of direct debits is that they are extremely easy to cancel, provided you take the following steps:

  • Contact your bank – most people now enjoy the convenience of online and telephone banking services, and it is possible to cancel direct debit arrangements in this manner. It is advisable, however, to make sure that the decision to cancel the direct debit has been set out in writing, in the form of either a letter or email to your bank, in order to avoid any dispute over whether you cancelled the arrangement. 

  • Contact the recipient – you should also inform the recipient of the payment that the direct debit is being cancelled. If you don’t, and the payment simply stops, you may find yourself having to pay penalties or charges.

In addition to this, failing to inform your bank or the recipient about a cancelled direct debit could have a negative impact on your credit score.

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If you’re interested in finding out more about direct debits, then get in touch with our financial experts. Discover how GoCardless can help you with ad hoc payments or recurring payments

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