How Long Does A Debt Relief Order Affect Credit?

 A Debt Relief Order (DRO) is a common financial management tool in the UK. It is designed for residents with less than £15,000 worth of debt, who do not own a home, and who have a limited amount of spare income.

When a DRO is implemented, creditors must receive court permission to recover the money they are owed. After approximately 12 months, the covered individual is freed from the included debts.

Though a DRO usually ends after one year, credit rating is affected for a longer period. The DRO is placed on the Individual Insolvency Register and is not removed until three months after it concludes.

The Individual Insolvency Register is a publicly searchable online database published on the Insolvency Service website. Northern Ireland and Scotland have separate insolvency registers from England and Wales.

Even after a DRO is removed from this register, credit continues to be affected…

The DRO remains on the credit record for six years. During this period, the individual may have difficulty obtaining credit with reasonable terms. Credit card providers typically offer low credit limits and high interest rates. The interest rates for personal and car loans may also be unattractive.

The credit impact of a DRO can even make it difficult to get a mobile phone contract. A prepaid mobile phone plan may be the only option. This requires the individual to deposit money into a calling account and top off when the balance runs low. If there is not enough money in the account, the service will not be provided.

This is not the most convenient way to get mobile phone service but there may be no alternative.

Paying credit bills on time and in full is the best way to rebuild the credit rating…

A co-signer who is willing to take responsibility for a credit account should the primary account holder default represents another way for a credit-impaired individual to get a loan or credit card. However, the most financially sound approach is to spend only what can be afforded in cash.

Though most people do not look forward to using a DRO, this debt management strategy is not the end of the world. Many people have emerged from a DRO to live a stable financial future.

Once the DRO is removed from the credit record, lenders may once again (depending upon your circumstances)  begin offering attractive terms for credit products like loans, credit cards, and mortgages.