The term over-indebted usually applies to a person whose current credit repayments are close to or exceed their income. You could be turned down for a credit application if in the eyes of a prospective lender, taking on their additional financial commitment would cause you to be over-indebted.

In order to protect borrowers from becoming over-indebted, lenders are now required to practice ‘responsible lending’ as a result of stricter regulations coming into force. Responsible lending refers to the idea that a lender must take appropriate measures to ensure their customers do not obtain more credit than they are able to manage.

Over-indebtedness typically leaves people in a difficult financial position and options such as Debt Management Plans or Arrangements to Pay might be recommended to help ease the burden, though they both have potential drawbacks. It is always recommended to do your research about any solutions that claim to be able to reduce debt, as they can have consequences that will affect your Credit Rating and ability to take out credit for at least 6 years.

Becoming over-indebted carries with it the statistically higher risk of Defaulting on payments and as such, lenders may lose out if they offer credit to someone at risk of non-payment. Responsible lending can help prevent the customer from becoming over-indebted which will ensure that they do not suffer the adverse effects of missed payments or arrangements to pay.

Will my Credit Report say if I am over-indebted?

It is up to each individual lender to determine whether it views you as over-indebted – your Credit Report will not explicitly reveal this.

Because your income does not form part of your Credit Report, lenders will usually ask for supplemental information about this and any other regular outgoings you have such as childcare. Using all the available information, lenders will then be able to make an informed lending decision.

If you have large credit limits then you may find it difficult to obtain further credit, even if you have not used this facility, as a lender must take into consideration what your expenditures would be if you were to suddenly max out your current limits.

Where can I see my existing debts?

Your Credit Report will show you any active credit accounts you have, including the current balance and limit, any regular fixed repayment and monthly changes. It will also show how you have managed payments over time, and any late or adverse information.

You can find out what is being reported by checking your Credit Report for yourself. Checkmyfile lets you check and compare data from Equifax, Experian and TransUnion together in the same easy-to-understand report.

It’s free for 30 days, then £14.99 a month. You can cancel at any time, online and without hassle.

If you have large credit limits then you may find it difficult to obtain further credit, even if you have not used this facility, as a lender must take into consideration what your expenditures would be if you were to suddenly max out your current limits.