You don't have to pay if you lose at POPLA. You would then have to wait and see if they decide to try and litigate. It will all depend on whether they believe they have a chance at getting a judge in the small claims track of the county court to agree with them that you owe them a debt.
The best outcome is them either not bothering to go all the way or, if they do, you win anyway. Worst case scenario, they win and you would owe them around £185 which would include all their costs etc. However, if they are unsure of their case, they will use DCB Legal to issue the claim on their behalf and they will eventually discontinue.
No danger to your credit record, even if you were to lose as a CCJ paid in full within 28 days of judgment is completely expunged from the record. The odds of losing this are low.