In the last week, three readers have queried what they have been told about defaults and their credit record:
Ms A: I have debts that have been defaulted for about 4 years. I have set up a debt management plan and Payplan say that if my debts are sold then the new debt company can place a brand new default on the loan and the default date would be when the new debt company (not the originator) have placed the new default. They said this could happen more than once. Is that correct?
Mr B: My Aqua debt was sold to Link in 2018. Link say it wasn’t defaulted when they bought it so they added a default date. Aqua sent me a letter saying they had added a default in 2017, so I complained to Link. Link say they have done nothing wrong. Now Aqua say they didn’t add a default and can’t now as they no longer own the debt so I need to ask Link. What should I do?
Mrs C: I’ve been in a DMP for 9 years so it doesn’t show on my credit profile anymore and my Experian credit score is 964/999. StepChange have confirmed this morning that if I partially settle the debt it will show on my credit profile regardless of how long I’ve been in a DMP for.
All of those are wrong. Let’s look at each in turn.
What should happen when a defaulted debt is sold
When a debt that already has a default on it is sold, the debt purchaser adds another debt to your credit record which should have the same default date as the previous creditor.
This new debt will drop off 6 years after the default date.
The new creditor will NOT add a new debt with the date of the sale. It isn’t a problem I see happening in practice. Payplan is wrong to suggest to Ms A that this will happen.
Are you worried about having two defaults on your credit record after a debt is sold? This isn’t a problem – the credit scoring systems recognise this very common situation and only counts one of them.
What should happen when a lender made an error and didn’t add a default date
Mr B’s case is unusual in that Aqua had told Mtr B they had added a default in writing. Aqua later realised they hadn’t. Here the debt purchaser acted sensibly by adding a default when they bought the undefaulted debt – they haven’t done anything wrong here.
What should happen now is that Aqua should add a default to this debt. It doesn’t matter that they no longer own the debt, they made the error and they should correct it. Then the debt purchaser will have to use that default date.
A more common version of this is where the original creditor didn’t default the debt and maintains this is correct. The SCOR rules on credit reporting look at when a default should be added:
As a general guide, this may occur when you are 3 months in arrears, and normally by the time you are 6 months in arrears.
Here you should make a complaint to the original lender and take the complaint to the Ombudsman if they won’t correct it – see What should the default date be? for more details.
What should happen if a debt that has dropped off the credit record is settled partially?
A debt with a default drops off your credit record after 6 years. That is why the default date matters – the earlier it is, the sooner your credit record will be clean.
A defaulted debt that has dropped off should never reappear. It doesn’t matter if you settle it in full, in part or never pay anything to it, it will not reappear. See How partially settling a debt affects your credit record for details.
Creditors also often suggest a partially settled debt would reappear – it won’t. StepChange should not have told Mrs C that it would.
The only way this debt can harm your credit score is if the creditor takes you to court for a CCJ – then the CCJ will show on your credit record but the debt itself will still not reappear. See Do I have to pay a debt that no longer shows on my credit record? for details.
When can you get a default deleted?
Improve your credit score for a mortgage
UK credit records – fit for purpose?
Karen says
That’s so reassuring- thankyou. I thought payplan advisor’s were trained on this sort of thing so not sure why they have told me this
Sara (Debt Camel) says
I don’t know. It’s pretty basic advice. And there is no possible advantage to Payplan from getting this wrong – in the case of creditors giving warnings about partial settlements reappearing on your record, you have to wonder if the staff are badly informed or trying to mislead people to pay in full as it’s better for their firm…
Karen says
Thanks Sara. I feel so much better. Our defaults are nearly 5 years old so it would be awful to have to go through the 6 year cycle again.
Sam says
Hi Sarah,
I wanted to follow up on previous conversations with you.
I have two debts with Hoist Finance, both of which are CCJs for credit card bills from approximately 200. The first is for £2021.63 and the second is for £9820.70.
Thanks to your advice and with help from National Debtline, I wrote to Hoist asking to write off the debt supported by a budget plan and explanation of my circumstances. They rejected but agreed to the token monthly £1 for each account. I’ve been paying this since February 2022.
I am thinking of approaching them again with another request to write off the debt, as it’s highly unlikely that I will ever be in a position to pay them off given my circumstances, and that I will soon be in my 70th Year. Things are getting tougher with the ever increasing rise in living, etc.
Meanwhile, a family member has offered me £600 to help pay the debt. So, I was thinking to send a letter asking for a write off, and if they reject my offer, then write back with and offer the £600 in settlement of the 2 debts (around 5%).
What do you advice? What is the best way and what should I say to them?
Thank you.
Sam
Andy says
The whole Default system needs an overhaul
A person can end up having a default registered against them for 6yrs for a stupidly low balance owing, yet the same punishment is applied to people with tens of thousands owed.
On top of that the “settled/satisfied” does the same amount of harm than a default – there’s no incentive to pay a debt off quickly when a default is applied.
What annoys me the most is there are Criminal convictions that have a max penalty that are less harsher than owing money to a company.
6yrs with a default can ruin employment chances, as I’ve found out (£200 Capone default paid in full, within 6ths of default applied)
Sara (Debt Camel) says
Totally agree
Karen says
Good point
Andy says
Unfortunately I raised this previously with my local MP (did include Sara on the email sometime ago) and the answer.was.its being looked into by FCA as part of the review.
BUT what they don’t understand is that the industry treats one person exactly the same as the other regardless of their situation.
A 19yr old defaults in the last month of a £12pcm contract. Screwed for 6yrs.
A businessman deliberately witholds payment for £1.5k pcm – he’s happy as he can afford it – regardless.of the default he has the capital etc to continue doing the same.
The system should be tiered just like the Court Fines and based upon amount owed, your earnings and how quickly you can clear it.
ie clear debt in 6mths, it’s marked as settled.
I did try to explain it to my local MP in a face to face meeting but hes a #### (Michael Fabricant – yep the one who’s famous for slating the Nurses and alot others) – when ppl.like that are elected the normal folk have no chance
adreva says
Great article and very timely considering Provident as part of their scheme have registered a default 4 years after the last payment! Having to write a compliant to hopefully correct it.
Sara (Debt Camel) says
If Provident fail to do this, saying you should have complained through their Scheme, then it may well be that you can get this whoe debt “suppressed” from your record as provident after a few months may stop communicating with the CRAs… but we don’t know about this yet. Come back in the autumn and ask again if provident don’t sort it now (which they should).
Justin says
Hi Sara
My Barclaycard defaulted in June 2016 and I have just received notification that on my next Clearscore report that the account will be removed from my credit files…I am not sure what happens to other credit files yet. I have since 2016 been paying a £1 token payment per month to Barclaycard. Slightly confused as I thought the fact that token payments were being made kept the account ‘live’ for credit reporting purposes? On the other side does this mean I no longer need to make any payments or would it only be 6 years until unenforceable had I not made any payments in that time?
Thanks
Justin
Sara (Debt Camel) says
All debts drop off a credit record 6 years after the default date.
But this debt is still enforceable as you have been making payments. the 6 years to become statute barred is when you aren’t making any paymentrs.
Can I ask if this is a very old card? And what your current financial situation is like? It’s pretty unusual for Barclaycard not to have sold a debt making token payments to a debt collector after a few years.
Justin says
Thanks Sara I think I originally took out the card in 2013 or 2014. The reason that the debt has not been sold is that due to the mental health difficulties they advised the debt would not be sold on. (Vulnerability provisions of various FCA manuals). Obviously as to date they have kept their word. I have raised several complaints re affordability and goto FOS but none went into my favour.
Debt collection companies have little success with me …AvanCredit debt sold to ACI, numerous complaints to them and FOS, affordability complaint finally upheld which meant loan should never have been given. Large write off by AvanCredit …this made the remaining debt by ACI rendered uneconomical to enforce in dealing and and they wrote the rest off especially as I threatened equitable liability/set off in court against another linked company where I had a payday loan claim to its full value rather then the percentage given by the administration.
I think I am a bit if a pain and if complain enough the debt collection companies know that even buying the debt at a reduced rate from original company they will never make any money.
I’ve realised that to get where you want you need to make things entirely uneconomical for said companies.
Thanks Justin