A reader asked ” I had some defaults on my credit record. The oldest one has just dropped off. It was over £7000 which I had repaid under a full and final settlement agreement. The other default left have three or four years left before they fall off but I’ve settled them all in full and they were also smaller than the first one that has gone.
I thought with the big, partially settled debt gone I would see an improvement – why hasn’t this happened? It seems that even though I have dealt with my old debts and one default has now gone and I haven’t got any more debts, my credit score isn’t going up.”
A lot of people have similar worries – they have had debt problems in the past and they really want to know when their credit rating is going to reflect the fact that they don’t have these problems any more!
So let’s look at the things which matter in this sort of situation, so you can see which might be relevant for you.
Defaulted debts disappear from your credit record 6 years after the default date. Closed accounts that weren’t defaulted disappear 6 years after the settlement date.
Future lenders who check your credit file will always see the real up-to-date situation. But some credit reports for consumers are only updated once a month… so don’t be disappointed if that old default still seems to be sitting there when it should have gone last week!
That doesn’t seem to be the problem this reader is having as he says the defaulted debt has gone, but it’s something to be aware of.
Easier to harm a credit score than improve it
Lenders don’t like defaults. Any defaults. So although having one default disappear is going to be good in the long run, if the rest of your credit file is still showing lots of problems, your score may well not increase much, if at all. As more defaults go, your score will improve, it just takes time.
And it’s really important that you avoid any new problems appearing. If you have a defaulted debt, you may wonder what the point is in making payments to it, if it will disappear anyway… but by starting to repay the debt it is much less likely that the creditor will try to get a CCJ which would spoil your credit record for another 6 years!
Your defaults matter less as they get older
A default in the last couple of years can reduce your credit rating by 350 points, but as they get older the penalty is reduced. See How much will my credit score change if… ? for details.
You need to start getting some positive markers
Although it takes time for the problems to disappear, you can help your credit score to improve faster by getting some new positive markers added each month.
The reader here doesn’t want to get back into debt – quite understandable! But having a credit card and repaying it on time every month will help a bit at the moment. And then when the last default goes you will have a few years of perfect markers showing and a great credit score. If at that point you don’t have any regular credit you are using, your credit score isn’t going to be so good as your record will be “too thin”, not showing a future lender that you are good at managing credit.
Try MoneySavingExpert’s “soft checker” to see what credit cards you are likely to be approved for. If all you can get is a “bad credit” card at a dreadful interest rate and a low credit limit, take it and use it every month but repay it in full every month. That way you will never have to pay any interest at all! Be on the look out for the “bad credit” card traps, but if you are careful, these are a great tool for improving your credit record.