Will an affordability claim hurt my credit record, and other questions

People often ask what happens to their credit score if they make a complaint. And what happens if they still owe a balance on the account. Here are some typical questions:

” Lloyds increased my overdraft limit several times a few years ago when I had a gambling problem. But I have recovered and am hoping to get a mortgage soon. I don’t want to complain if it will it harm my credit score, which is now looking pretty good.”

“I asked Lendable if I could pay less but they said this would be reported on my credit record so I am trying not to do this. If I make an affordability complaint will that hurt my score? “

“I still have the Tesco loan and Virgin credit card accounts open, will this claim have any impact on them? “

” I still owe another year on a 118 loan. Is it best to finish paying which will be hard or complain now?”

“I have a payment arrangement for a credit card. If I complain will they stop the arrangement?”

For details of affordability complaints, with a template to use, for the different types of debt, see:

• refunds from a loan;
• refunds from a credit card or catalogue where your limit is too high;
• refunds of interest and charges on an overdraft.

But the answers to these sort of general questions are much the same for all types of debt, although there are sometimes complications for car finance.

Making a complaint and your credit record

The complaint itself doesn’t show on your credit record

Sending the lender an affordability complaint doesn’t hurt your credit score or show on your credit record. The only exception is that a few catalogue lenders mark the credit record as “in dispute” – this doesn’t affect your score and it is a temporary marker until the lender responds to your complaint, when it is removed.

The only lenders that can see you have made the complaint are the lender you complain to and any other lenders within the same group. So if you complain to Barclaycard that they have increased your limit too high and you bank with Barclays, you should assume your bank knows about the complaint.

What about a future mortgage?

You should avoid applying for a new mortgage to a bank you have made an affordability complaint to. This also applies to different parts of the same group. So after complaining to Lloyds about an overdraft, don’t make a mortgage application to the Halifax.

This is just common sense – there are plenty of other mortgage lenders out there, so why take this risk? If you are using a mortgage broker, tell them about this part of your history, as they can’t see it on your credit record.

But you do NOT need to worry about making a complaint to a bank you already have your mortgage with.

All the major lenders have committed to letting customers who are up to date with mortgage payments to switch to a new fix without another affordability test. So when your current mortgage fix ends, if you just want a new fix for the same mortgage (same amount, same term etc) then this should be fine.

What about future lending?

Some lenders spell this out when they send you a decision. For example Lloyds sometimes says it will put a restriction on your account so you won’t be able to borrow more from them for a 12 month period.

But most don’t mention it. As with mortgages, I would generally suggest applying to a different lender.

Win a complaint and negative marks are removed, so your score may improve

When you win a complaint, any negative marks are normally removed from your credit record. Sometimes this is only done when you have cleared any remaining balance.

As the Financial Ombudsman says:

We’re likely to tell a lender to make sure their customer’s credit file doesn’t have any adverse information recorded about the loans where we’ve identified proportionate checks would have shown that the borrower couldn’t sustainably repay the loan. 

If a lender has accepted your complaint, you need to check that this includes cleaning up your credit score.

Can you stop paying when you complain?

Stopping paying a debt & your credit score

Making a complaint doesn’t put the debt on hold. You are not automatically allowed to stop paying it while the complaint is considered.

If you stop making the normal payments to the debt, this is very likely to result in missed payments and then defaults. Or to a payment arrangement being recorded on your credit record.

So if you can afford to make the repayments it’s a good idea.

Every payment you make will either reduce your balance owed or increase your cash refund, so you won’t lose out by doing this.

(There is an exception here if the lender has gone into administration – then carrying on paying may mean you get a lower refund. Ask in the comments below if you think this applies to you.)

When you can’t afford the normal payments…

If you can’t afford to make the normal payment, without borrowing more elsewhere or getting behind with bills, then it’s usually best to ask for a payment arrangement or say you can’t pay anything when you make a complaint.

This will damage your credit record but that may be temporary, as the negative marks will be cleaned if you win the complaint.

If you borrow more to try to carry on making the payments, then you may then get into problems with another debt and end up in a worse position. For example, if you win your complaint about a loan in the end, but your credit card payments have now got too high winning the loan complaint doesn’t sort out your credit card problem…

So in most cases it’s better to confine the problem to the debt you are complaining about. Don’t let it infect the rest of your finances by struggling to make unaffordable payments.

If you aren’t sure what to do, talk to National Debtline on 0808 808 4000 and tell them you are looking at affordability complaints. They can help you decide what will work best for you.

Car finance is a priority debt

With a secured debt such as car finance or a logbook loan, if you stop paying the lender may repossess your car. These secured debts have to be treated as a priority, so you should pay them even if you do get behind with other non-priority debts.

Again talk to National Debtline if you are struggling to pay priority debts or are unsure what to do.

Is it best to wait until a debt is repaid?

No!

It is good to complain as soon as possible (except sometimes for car finance, see below). The sooner you complain:

• the easier it is to get information from your credit record and bank statements to help with your claim;
• the sooner your problem is solved! You will not get more money by delaying a claim.

Also some lenders seem to make better offers to settle an outstanding balance rather than a loan that has been repaid.

You can still complain when the debt is cleared. I am just saying there is no reason to wait for this.

Will a complaint affect a DMP or payment arrangement?

These aren’t affected by making a complaint. The lender won’t suddenly decide you have to pay more, or start adding interest which they had stopped.

This has never been a problem in practice.

Being in a DMP is a very good time to make a complaint as you are in a safe financial situation. If you win the complaint your balance will drop so the DMP will end sooner.

Will getting a refund affect my benefits?

A refund is treated by the benefits system as more money in the bank, not extra income that month. So there is usually no impact on Universal Credit or other benefits affect unless the refund is very large, leaving you with over £6000 in the bank.

Ask a question in the comments below if you are unsure.

How refunds work when you still owe money

Will my bank close my account when I complain?

This is a common worry. But it has been very rare.

One customer said Santander closed her account when she made a complaint about the overdraft affordability, but other Santander customers haven’t had this problem.

If you are worried, you could open another bank account so it’s there if you need it. The challenger banks – Monzo, Starling and Chase – have accounts with good apps and good budgeting facilities.

Refunds are first used to clear a balance

When you win a complaint, and you still owe a balance, the refund is first used to reduce that balance. so that overall you only have to repay what you borrowed.

Here is a simple example.

If you have borrowed £2,000, which became £2,700 with added interest and you had paid £2,300 so far, with a balance remaining of £400, if you win the complaint the balance is cleared and you get a cash refund of 2300-2000=300.

You can’t usually ask to have all the refund in cash and to be able to carry on repaying the balance.

Do I have to pay a reduced balance immediately?

A similar example but earlier in the loan so you have repaid less:

If you have borrowed £2,000, which became £2,700 with added interest and you have paid £800 so far. If you win the complaint the interest is removed and the balance is reduced to 2000-800=£1,200 so you only repay in total what you borrowed.

So do you have to repay the £1200 immediately? Or just carry on making the loan repayments? No. The creditor should accept an affordable offer of repayment from you and not add on any more interest or default that debt.

In practice this doesn’t seem to be a problem and creditors seem to be reasonable about this. For example, see this comment from someone whose lender was difficult all the way through the complaint but absolutely fine about reaching an agreement on repaying the debt when the case was upheld at the Ombudsman.

For overdrafts, banks will normally reduce your overdraft limit, sometimes removing it, after your balance is reduced. Again this doesn’t seem to be a problem and most people are very happy with the result.

Car finance – when you owe a balance and want to keep the car

Car finance can be complicated. You may still get a very good result from a complaint.

But if you still have the car and you are still paying, you must read about what happens if you win the complaint before making a claim.

Often you may want to delay making the complaint until you have repaid not the whole debt but the amount you borrowed.

What if the debt has been sold?

If you defaulted on the debt and it has been sold, you complain to the original lender because they made the poor decision to lend when it was unaffordable.

If you then win the claim, the lender will sort out the balance with the debt collector who has bought the debt. Sometimes the lender gets the debt back and sorts it out. Sometimes they leave it with the debt collector and get the balance corrected. It is up to the lender which they do.

Your credit record with the original lender and the debt collector should both be cleaned.

What has happened to other people complaining about….?

The best thing to do here is to look at the comments below the specific article for your type of debt:

• loans;
• credit cards, store cards and catalogues;
• refunds of interest and charges on an overdraft.

But your case is individual. Just because one person got a good result or a straight rejection from a lender doesn’t mean you will.

And remember that many of these cases are being won at the Ombudsman. So if the debt caused you problems and you think the lender should have realised that was likely at the start, go to the Ombudsman if you get a rejection or a poor offer. Lenders are hoping you will give up!

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