Nikki Bond, Intern, Money and Mental Health

Credit scores - a lasting reminder of poor mental health

“I became unwell with psychosis. I ended up owing thousands, everything from water to phone bills. My credit rating is now terrible and it has impacted on my future despite me being well now.”

As our research has demonstrated over the last year, people with mental health problems are more likely to be in financial difficulty and have issues managing their money. This often results in missed payments to creditors – whether that’s unpaid energy bills, council tax or a phone contract that gets ignored during a period of crisis. As well as the short term consequences – letters and calls from creditors, or potentially having a service disconnected – this can leave long-term scars through its impact on people’s credit files.

The emotional and practical impacts of poor credit ratings often have long term psychological consequences, exacerbating existing mental health difficulties, prolonging recovery and can serve as a lasting reminder of periods of poor mental health.    

Why are credit ratings confusing?

Our Research Community have shared with us their experiences of mental health and financial difficulty, and the impact it’s had on their credit scores. Many people told us that they find the credit rating system complex and confusing, and according to research by one agency they’re not alone, Equifax found that over half of UK consumers don’t understand their credit scores.

A credit score is the tool a creditor may use when deciding whether to lend to you, how much to let you borrow, and how much interest to charge you. This all sounds simple enough, but there are a number of factors that make this system difficult to comprehend:

  • The language of credit ratings is full of jargon, with ‘notices of corrections’,  ‘soft searches’ and ‘hard searches’, defaults and county court judgements
  • There are different agencies providing credit ratings, each with a unique system for scoring and providing different scores
  • Lenders will use different credit score agencies, interpret scores differently, and apply their own lending risk criteria too.

This already difficult landscape is all the more tricky to navigate for people with mental health problems, where existing difficulties with communicating, understanding and remembering complex information may present their own challenges. Many members of our Research Community told us they find the task of understanding and managing their credit scores at times overwhelming.

“My credit card provider has now sent me a default notice and I am scared and confused about what this means for the future.”

Future implications

During periods of poor mental health, when financial capability may fluctuate, it can be difficult to understand, weigh up and remember the long term impact of missed payments, or reduced repayment plans. Whilst one missed payment is unlikely to have a significantly detrimental impact on your credit score, five or six missed payments is highly likely to have lasting consequences.

In our research, people repeatedly reported feelings of hopelessness and being ‘trapped’ by poor credit ratings, with reduced access to affordable credit, and not being able to obtain private tenancies or get a mortgage.

“You spiral into more and more debt due to being ill. You can’t keep up and begin to feel more and more hopeless. You then get punished with a bad credit rating and struggle to get basic things such as housing.”

Hindering recovery

After a period of acute mental ill health, when people begin the process of recovery, adverse credit information can have a real impact upon people’s feelings of hope for the future, driving feelings of anxiety and shame.

“I feel ashamed and humiliated, powerless and useless, my credit rating is now at the lowest level possible… I lost my home, my mind, my security, my job and my future.”

Given the high stakes involved in managing our credit scores, the doors a good score opens, and those a poor score may close, it is vitally important that people are supported to understand the implications of their payment histories, and how to preserve their credit scores as best they can.

People with mental health problems are more likely to be in financial difficulty that will affect their credit rating. They are also more likely to find the system confusing, making it harder to rebuild a credit score, and potentially exacerbating the psychological distress a poor rating can cause.