This blog will answer the question “Can council tax affect credit rating?” It will also cover topics such as credit rating, credit score, council tax arrears, effects of unpaid council tax, things affecting your credit rating etc. 

Can council tax affect credit rating

Council tax cannot affect credit rating. Not paying council tax debt on time might cause you a lot of problems, but affecting your credit rating is not one of them. There is no effect of council tax arrears on credit score or rating. This is so because local councils do not pass your council tax data to credit agencies.

Council tax arrears

Being in arrears with reference to council tax occurs when you have missed a Council Tax payment, when you owe money to your local council. Council Tax arrears is a ‘priority debt’, meaning that it needs to be paid before debts like credit cards, at the first possible occasion. If such occurs, you should  contact your council regarding the same as soon as possible. You need to inform the council about your situation.

What happens when I don’t pay council tax

If you ignore your Council Tax arrears, your council will eventually take you to court to get all the money at once.

If you miss your council tax payment, you’ll get a reminder from your council about 2 weeks after you miss a payment.

If you still don’t pay within 7 days of the reminder the council will send you a final notice.

It will seek permission from the court to collect the debt from you. This order granted by the Magistrates, is known as a liability order.  The council applies for a Liability Order so that it may enforce the debt. As long as the Magistrates are satisfied that the council has issued the statutory notices and that the debt remains outstanding, they will issue a Liability Order with costs.

After that you need to pay the outstanding debts.

Credit rating

A credit rating shows how likely a lender is to offer you credit. Credit rating is a number that goes up or down depending on what we’ve done in the past and present with money, especially with respect to loans and credit cards. A high number resembles a good credit rating while a low number resembles a bad credit rating.

When you apply for any credit the lender tries to predict your future behaviour based on your past actions. They analyse lots of different data for that. 

Your credit score is hugely important and has a bearing on whether you will be able to get credit or not.

Council tax arrears and credit rating

Councils don’t share data about your payments, be it good or bad. If you’re in council tax arrears, it won’t affect your credit score. Local councils don’t report any data to the credit reference agencies, and lenders have no way of knowing if you are in council tax arrears.

What time you make your council tax payment, whether it is late or on time, it won’t appear on your credit report.

It is, however, always wise to prioritise your council tax payments so as to avoid court procedures. Council tax arrears are dealt with as a criminal matter, not a civil one, so you could end up with a criminal conviction.

Even in situations where the debt is referred to court, it is dealt with by the magistrates’ court, and no fines imposed by the court appear on your credit report.

The only impact that arrears have on credit is to reduce your overall wealth, and nothing else.

What not included in credit score

The following points have no impact on, and are nowhere mention in credit score:

  • Previous occupants at your home address make no difference whether they were  bankrupt or billionaire. Creditors are only interested in your financial details and anyone you are linked to financially, like a partner with a joint bank account with you.
  • Friends and family, or anyone you share your residence with are not important for lenders unless you share a financial link with them too.
  • Things from your distant credit history are not important, especially if they are more than six years old.

Credit rating must knows

There are certain things you must know before applying for a credit.

The following are a few must- know information about credit rating that an applicant should have :

Only borrow what you can afford

If you want to use credit, make sure you meet at least the minimum repayments comfortably.

Consider setting up direct debits

Regular payments look good to companies, so consider setting up direct debits for things like a mobile phone contract or credit card, to ensure you meet your payments on time and in full.

Check your credit report regularly for accuracy

Inaccurate or negative factors affect your credit score, so you should check your report regularly, and contact the relevant company for any correction.

Help protect yourself and your credit score

You should look out for unfamiliar or suspicious entries in your credit report so that you don’t become  a victim of fraud or identity theft.

No such thing as a credit blacklist

In the UK, there is no uniform credit rating or score, and there is no blacklist of banned people. Each lender scores you differently and secretly. This implies that just because one lender has rejected you, it does not automatically mean that others will too.

Application form

It is important to be aware of what the lenders know when you apply for credit.

Your application form is an important part. It provides the  lenders several key details, such as your postcode, salary, family size, reason for the loan, whether you’re a homeowner etc.

Therefore, you should make sure that you fill in the forms carefully

Your life is not your credit rating

Every element of your life is not on your  credit reference file. It is mainly just a strict set of financial data. Though over recent years, the information contained on them has grown. Your race, religion, ethnicity, salary, savings account, medical record, criminal record etc., are not listed on your credit rating file.

Things not good for credit rating

The following things are important for your credit rating, and might impact it negatively:

Paying late

It can hurt your credit rating. Paying off your card a couple of days late, can make a huge negative impact.

Defaulting

Defaulting means not paying your debts. It is the next step after late payment. It leaves a big mark on your credit report.

County court judgments

When you default, you might get a County Court Judgment. A CCJ stays on your credit file for six years.

Not being on electoral roll

Even if you don’t vote, not being on the electoral roll lowers your credit score.

Minimum payments

A minimum payment means paying the smallest amount you can pay to keep the credit card company off your back. However, it impacts your credit score, which knocks off some points on account of it because it looks like you can’t pay off your debt. Paying off as much of the statement as you can means less negative points on your file.

Old accounts with wrong address

You need to keep your credit file neat and tidy so that when banks look at it, they know it’s all legit. Old accounts with different addresses make a creditor wonder what address is right, or if there is some fraud, which eventually lowers your credit score.

Not enough old accounts

However, if in balance, old accounts can be a good thing if they’re all corrected. One or two accounts that you’ve had since you were a teenager show a complete and unbroken financial history, which boosts your score.

Applying for credit too often

Multiple credit applications also affect your credit rating negatively, regardless of whether they have been successful or not. This is because each application records a hard search on your report, so you should only try to apply for credit you’re eligible for

Other people

If you have a joint account, a joint mortgage, or even a housemate you shared a utility bill with, it means you might be linked to them financially. Hence, their bad credit score drags down yours too. In order to fix it, you need to end the credit agreement.

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Where credit rating can affect

There are several major financial areas that might be affected by credit rating.

Some of these areas are:

  • Mortgages: If your credit score is poor, you’ll be rejected from a mortgage.
  • Credit card: Your credit score dictates whether you’ll be accepted for credit card or not, whether you’ll be given promotional rates on an already existing one or not, and the APR you’ll be charged afterwards.
  • Loans: Your credit score matters both for acceptance of a loan application and the rate of interest you are charged on a loan.
  • Utility bill: Utility companies too, have made it even more important to pay your bill on time, or it affects your credit rating.
  • Mobile phones: If you’re getting a contract mobile phone, the company checks your credit score. This is so because the mobile company is spending the cost of the handset over the contract, so it is a form of loan for it, for which it needs to verify whether you will pay it back or not.
  • Car and home insurance: Similar is the case with insurance. If you are opting to pay monthly installments, then in practice the insurer is loaning you the money to pay upfront, spreading the cost over the year and charging you interest so it needs to perform a credit check first.

Conclusion 

This blog answered the question “Can council tax affect credit rating?” It also covered topics such as credit rating, credit score, council tax arrears, effects of unpaid council tax, things affecting your credit rating etc. 

FAQs

Does paying Council Tax improve credit rating?

No, paying or not paying council tax does not improve or affect your credit rating.

 

Does council tax affect mortgage?

No, council tax does not affect mortgage. There is no way of a lender knowing that you are in arrears. Local councils do not provide your council tax data and information to lenders.

What are the worst things to have on your credit report?

Missing, late or skipped payments, using too much available credit, defaulting on your accounts, applying for too many credits over a short period of time are some of the things that are worst to have on your credit report.

Do tax bills affect credit score?

No, tax bills do not affect credit score. Your credit reports do not track any tax bills or payments. So your tax payment record, or any failed payment are not factored while calculating your credit score.

What is the average credit score?

The average credit score in the UK is 569, which is based on several data analysis. 

What is a decent credit score in the UK?

In the UK, a credit score between 721 to 880 is considered fair, that between 881 to 960 is considered good or decent, while a score between 961 to 999 is considered excellent.

Citations 

https://www.creditladder.co.uk/blog/myths-about-credit-score#:~:text=Council%20tax%20arrears%20will%20 affect,to%20the%20 credit%20reference%20agencies.

https://www.moneyadviceservice.org.uk/blog/tag/credit-rating
https://www.experian.co.uk/consumer/guides/good-credit-score.html
https://www.barclaycard.co.uk/personal/money-matters/credit-score-basics/what-is-a-good-or-average-credit-score
https://www.thesun.co.uk/money/13147977/boost-credit-score-council-tax-netflix-bills-saving-cash/
https://www.moneyadviceservice.org.uk/blog/11-worst-things-for-your-credit-score
https://www.moneysupermarket.com/credit-monitor/credit-score-capital/#:~:text=The%20score%20you%20see%20is,the%20UK%20is%205692.
https://www.theguardian.com/money/2002/jun/21/consumernews.consumeraffairs
https://www.moneysavingexpert.com/loans/credit-rating-credit-score/
https://www.teignbridge.gov.uk/council-tax/pay-your-council-tax/what-happens-if-you-dont-pay-your-council-tax/what-happens-at-the-court-hearing/
https://www.experian.co.uk/consumer/guides/what-affects-score.html
https://www.citizensadvice.org.uk/debt-and-money/help-with-debt/dealing-with-urgent-debts/dealing-with-council-tax-arrears/
https://www.sutton.gov.uk/info/200515/council_tax/1503/late_or_non-payment_of_council_tax/11
https://www.which.co.uk/money/tax/council-tax/paying-council-tax-ap7pg6f12un8
https://www.finder.com/uk/council-tax-arrears-credit-score

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