How to repair your credit record after bankruptcy

Bankruptcy will badly affect your credit record for six years. This article looks at what should happen, how to correct any problems, and how to improve your credit rating when you are discharged. Even if you have no intention of getting into debt again, a good credit score makes it easier to rent a house, get a mobile contract and it’s essential if you want a mortgage.

To do a thorough job,  check your credit records with all three Credit Reference Agencies, not just one of them.

How bankruptcy should be recorded

After you go bankrupt:

Bankruptcy will be shown in the Public Record section of your credit record. It can sometimes take a few weeks for the entry to appear, but when it does, the date on it will be the date your bankruptcy started. If you went bankrupt before April 6 2016, this is the date you went to court, after then it is the date your bankruptcy application was approved.

If it hasn’t already been marked as defaulted when you go bankrupt, an unsecured debt should be marked as defaulted with a default date which is your bankruptcy start date. There will be no change for any debts which have already been marked as defaulted or for CCJs.

The situation with a secured debt such as a mortgage is slightly more complicated:

• if you carry on paying your mortgage and there are no arrears a default should not be recorded;
• if you stopped paying the mortgage before bankruptcy or when you go bankrupt, a default should be recorded with the bankruptcy start date;
• if you initially carried on paying the mortgage after bankruptcy but later stopped, the default date should be the date you went bankrupt, see ICO guidance in 2007 which said
  “[paragraph 48]  If the customer stops payment at a later stage, the default recorded should show the date of the IVA or bankruptcy and the fact that it was settled only by IVA or bankruptcy…” 

When you are discharged:

• The Insolvency Service will notify the CRAs who will add this to the Public Record section. This doesn’t remove the bankruptcy marker – that will stay on your record for six years.
• The debts included in your bankruptcy should be marked by the creditors “to show that you no longer owe money on that account (perhaps by marking the entry as ‘partially satisfied’ or ‘partially settled’ or in some other way)”  (quote from the Information Commissioner’s Office).

After six years everything vanishes and your credit rating will improve significantly:

• The bankruptcy marker will drop off your credit record.
• Defaulted debts will drop off six years from the default date, so some of these may have disappeared already and the rest should go at the same time as the bankruptcy marker.
• CCJs drop off six years from the judgment date, so they will also be gone six years after the date your bankruptcy started.

Correcting problems

1) Creditor doesn’t use the right default date

Don’t complain to Experian, Equifax etc about this – they just report what the creditors tell them. You have to ask the creditor to correct the record.

Don’t try to do this on the phone because you are likely to spend a long, frustrating time talking to staff who don’t understand what you are saying. Instead write a letter to the Data Controller for the creditor (get the address from the ICO here), send it Recorded Delivery and keep a copy. For all debts except for mortgage shortfalls, use this template:

Recheck you credit file after say six weeks. If it has not been corrected, put in a complaint to the Information Commissioner’s Office here . Attach copies of your letter to the creditor, proof of posting and any reply from the creditor.

2) Problems with mortgage debts

It can be harder to get mortgage lenders to correct a date. If the lender has recorded the default date as being the date your house was repossessed not the date of your bankruptcy, you should include in your letter the quote from the ICO guidance in 2007 that is given above.

However it seems that the ICO is failing to apply its own guidelines with this type of situation. Here are two cases where the Financial Ombudsman has upheld the complaints, applying the rules about dates as they are described in this article: HSBC mortgage case and Platform mortgage case. So I suggest that in this situation if the lender doesn’t correct your record when asked,  you should complain to the Financial Ombudsman, not to the ICO.

3) Debt not marked as satisfied after discharge

The creditor doesn’t have to mark the debt as fully settled/satisfied so there is no point in complaining if the debt has been marked as partially settled/satisfied.

But if your debts are still showing as having a balance owing, this needs to be sorted. Ideally you need to get a Certificate of Discharge from the court where you went bankrupt (this costs £70 and £10 for additional copies) however many lenders will accept a copy of the free letter from the official receiver that you may have received. Then send the following letter to the data controller for the creditor:

Again, complain to the  ICO as above if the entry is not corrected.

4) CCJs are not amended when you are discharged

There is no ‘partially settled’ status for a CCJ and the court only has to mark a CCJ as satisfied if you have paid it in full, which you haven’t.

Is it worth doing this?

It is definitely worth correcting the dates of default unless they are just a bit late. If these are months late, this delays the time until your credit file is clean as these defaults will still remain after your bankruptcy marker has gone.

Marking your debts as satisfied after discharge is less important.  Even if you get this amended, applications for credit, a normal bank account or a mortgage may well be refused whilst bankruptcy is still on your credit file. If you are close to the six-year drop-off, then you could decide to wait and let that clean everything up.

However, getting a debt marked as satisfied will improve your credit rating slightly, which may be enough for you to be approved for a ‘bad credit’ card, see below. It also prevents the debt being ‘sold on’ to another Debt Collector, which is annoying as you have to correspond with yet another person and send them details of your bankruptcy.

Getting positive markers on your credit file

In addition to cleaning out the bad stuff from your credit history, you should aim to start acquiring new, positive credit marks after you are discharged. Make sure you are on the electoral roll, that your address etc are correct on your record, that your bankruptcy discharge is shown and start the clean-up process above. This may take several months to complete if you have to go to the ICO.

Then apply for either a Vanquis or a Luma credit card.  Vanquis is owned by Provident, Luma is owned by Capital One – if you have had debts to either of these firms included in your bankruptcy, I suggest you apply to the other one to maximise your chance of being accepted. If you have had debts to both firms included in your bankruptcy, still apply to one of them – they make their money from taking on high-risk customers.

If you are refused, double-check your credit file really is clean with all three credit reference agencies and wait six months or so, then apply to the other card.

These two cards are aimed at people with very bad credit and they charge a very high rate of interest.  This doesn’t matter because you should aim to use the card every month and repay it in full every month, so you will never get charged interest! If you find your balance is creeping up because you are not clearing it in full, then you need to stop spending on the card until it is cleared and have a re-think about budgeting. Your credit rating will not improve faster if you leave a balance on this card.

After you have had one of these cards for a few months, think about getting a cheap monthly mobile phone contract, probably a SIM only one.

This all takes time

If you were expecting discharge from bankruptcy to make an immediate improvement to your credit score, it usually doesn’t…  There isn’t a way to speed this up.

Don’t pay any firms offering a ‘repair your credit’ service because either they don’t work at all (see the Bad Debtor link at the top of this page for an example) or they will be no better than what you can do yourself.

The template letters to your creditors here are very likely to work. If they don’t, putting in a complaint to the ICO is the best way to repair your credit.

Look out for the problems with “bad credit” cards

Amigo – not a good way to rebuild a credit rating

How does discharge from bankruptcy work?