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.