Money Clinic with Claer Barrett
Credit scores: when a small debt becomes a big problem
Oct 31, 2023
Sara Williams, a debt blogger, and James Jones, Head of Consumer Affairs at Experian, discuss credit scores, small debts impacting mortgages, and credit rating agency flaws. They explore the consequences of small historic debts, defaults on credit scores and mortgages, and tips for improving credit scores and loan opportunities.
33:53
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Quick takeaways
- A small debt, such as an unpaid iPad data plan, can have a significant impact on one's credit score, potentially affecting mortgage rates.
- Debt collection agencies and phone companies should improve communication and responsiveness in resolving debt collection issues.
Deep dives
The Impact of a Small Debt on Credit Score
Kalyan's story illustrates how a small debt can have significant consequences on one's credit score. After mistakenly continuing to pay for an iPad data plan he no longer used, Kalyan canceled the direct debit and paid off the outstanding balance. However, this led to a default being recorded on his credit file, causing his credit score to drop by 260 points. With his fixed rate mortgage expiring soon, Kalyan is concerned that his reduced credit score may affect his ability to secure favorable rates. He questions why such a small blip has such a drastic impact on his credit profile and calls for more fairness in credit scoring.
