Debt problems are often linked with credit rating problems. This makes them doubly difficult to deal and it’s hard to find good sources of information that cover both.
Contents
Find out the facts – what information is on your credit record
The important first step is to find out what is actually on your credit record.
You actually have three separate credit records not one. Each of the three main Credit Reference Agencies (CRAs): Experian, Equifax and TransUnion (previously called CallCredit) has a credit file for you.
These may not all have the same information on them because some lenders only report to one CRA. None of these are “better”, they are just different, see Experian or Equifax – which is best?
You can now check your credit records with all three credit reference agencies for free. Never ever pay for this!
Find out which of the 15+ credit reports you should use in The best free ways to check your credit score? If someone tells you to use ClearScore or says Noddle is best, remember that those are reports that only cover one of the three CRAs and you need to check all three,
There are three types of information on your credit record:
- information about you
This included names, aliases, previous addresses, telephone numbers, whether you are on the electoral roll etc.
It is essential this is accurate. It is also good if it doesn’t change much! Try to always use the same job title and telephone number, preferably a landline, with all lenders. If you absolutely must change your name, wait until after your mortgage application has gone through!
Being on the electoral roll is viewed by lenders as a sign of stability, so get yourself added even if you never intend to vote. - CCJ’s, bankruptcy, IVAs, DROs
These are notified by the court or the Insolvency Practioner. - loans (including mortgages, car finance, payday loans), credit cards and catalogues, overdraft and some utility bills
These are notified by the lender so you see information for each debt – this includes what the balance is, your recent payments and various status codes.
Something wrong on your credit record?
If you think there is a mistake on your credit record, you need to get it corrected. This can take time, so tackle any problems when you hear of them, don’t wait until you are about to apply for car finance or a mortgage.
For problems with a particular debt, it’s best to talk to the creditor directly and not the CRA – they just report the information they are given:
- if the balance is wrong, or the account is closed, or you think the default date is wrong, ask the creditor to correct it;
- often you can’t get a default removed. Can I get a Default deleted? looks at the situations when this can be done and your other options (such as changing the date on the default) if it can’t.
If there are debts showing that you don’t recognise, read Is there a mystery debt your credit record?:
- this could be an error by a lender – in which case ask the lender to correct it – or by the CRA if a debt is incorrectly linked to your account;
- if you have more than one unknown debt showing, you may need to think if you have an identity theft problem.
When something is showing which is correct but you feel it is unfair, read Should you add a Notice of Correction to your record? That article explains how to do this. Lenders will then see your Notice but it may not make a difference to your chance of getting credit.
If credit report says you have a Cifas marker on your file, this is an indication of fraud. See Is my name in a fraud database? for how to find out more about this and challenge it if it wrong.
Talk to the CRA about problems with your personal information – if they have an address showing that you have never lived at, or you are showing as being linked to an ex, see Splitting Up.
Lenders don’t use the credit scores the CRAs calculate!
Credit reference agencies will tell you their own ‘credit score’ for you and may offer tips on how to improve your credit score.
Lenders don’t use these scores! Most lenders will “check your credit record” when you apply for a mortgage, loan, credit card or other sorts of credit. They will get the detailed information from one or more of the CRAs, but then they have their own way of deciding what information on your record is important.
Some examples:
- if you repay a debt with a default or a CCJ your credit score doesn’t increase at all but many lenders will be more likely to lend to you as they can see you have sorted out problems;
- having a payday loan which you have repaid on time doesn’t harm your credit score, but most mortgage lenders will reject an application if you have had payday loans recently.
So the CRAs “credit score”s often aren’t much help to you – but a bad score is a sign that you will definitely have trouble with credit applications.
Improving your credit record
- How much will my credit score change if…? looks at some guidelines from Experian.
- Should I close an unused credit card?
- Will paying off debt improve my credit rating?
- Can I speed up improving my credit score?
- Credit Ladder can paying your rent on time improve your credit score? Read this article before you sign up for it!
Don’t be tempted by firms advertising to repair your credit record – they are either scams that don’t work or you can do it yourself for nothing.
Most bad information drops off after 6 years
Most bad debt problems disappear from your credit record after six years:
- Closed accounts which haven’t been defaulted drop off 6 years after the account was closed.
- Defaulted accounts drop off 6 years after the first default date. (But the debt still exists and you could be taken to court for a CCJ for it – see Should I keep paying an old debt? for details.)
- Insolvency markers drop off after 6 years (but may sometimes be delayed for IVAs. see below
- CCJs disappears after 6 years. (If you paid a CCJ immediately, within 30 days, it would have been removed at that point.)
Once a debt has dropped off, it will never re-appear.
So if you stop new problems from appearing on your credit record, as time passes your old problems will disappear.
Understanding defaults
A defaulted debt will disappear from your credit record after six years, regardless of whether it has been settled, partially settled, you are still making payments to it, or not paying anything to it at all. This makes the default date a vital piece of information!
- What should the default date for a debt be? This also explains how to get the date corrected if it is wrong.
- Can I get rid of a default? Not normally, but if you feel a default is unfair, then check out this list of situations where it may be possible to have it deleted.
- Will paying a defaulted account help my credit score?
- One less default – why hasn’t my credit rating improved? a reader with several defaults was hoping for an improvement when a large default dropped off
- Misleading threats to add a default Some debts such as a builder’s invoice will never appear on your credit record (unless you get a CCJ) and it is misleading of a creditor or debt collector to suggest that they can.
- What is the difference between Settled and Satisfied on your credit record?
Old debts
If you are currently making payments to an old debt, read Should I keep paying an old debt?
When you have debts that aren’t showing on your credit file, read Do I have to pay a debt which isn’t on my credit record?
If all has gone quiet about a debt that you haven’t been paying for years, read No calls or letters about a debt for years? and also When does a debt become statute barred?
Debt options and their effects on your credit record
Debt management and payment arrangements
- How does a DMP affect my credit rating? read this one if you are thinking of a DMP or are in the middle of one
- My DMP is ending – when will my credit record improve? read this one if your DMP is close to the end or has already finished
- Would a payment arrangement help me?
Partial settlements
Insolvency
It is a myth that going bankrupt destroys your credit forever.
All three sorts of personal insolvency have the same effect on your credit record, see Bankruptcy, IVA, DRO and credit ratings for details.
You may think an IVA would be better than bankruptcy but it isn’t. In fact the IVA marker can stay on your credit records for longer than bankruptcy if your IVA takes more than 6 years to complete – and about 10% of IVAs take more than 7 years to finish.
The “clean up” procedures are much the same after all the different sorts of insolvency, but the timing varies (you can start much earlier with bankruptcy and a DRO) so there is a separate article for each:
- Repair your credit record after bankruptcy
- Repair your credit record after a DRO
- Repair your credit record after an IVA.
Mortgages
A good credit record is important for getting a good mortgage offer – but it isn’t the only thing that matters!
You can spend a lot of time and effort trying to increase your credit score when that may not may any difference to your chance of getting a mortgage… And your outstanding debts are also important for a mortgage application, even if they are no longer showing on your credit file! For more details, look at:
- How fast can I improve my credit score to get a mortgage?
- Can I get a mortgage with debts?
- Payday loans make it hard to get a mortgage.
“Bad Credit” borrowing
- Four “bad credit” card traps – and how to avoid them Bad credit cards such as Vanquis can be useful tools to rebuild a credit rating when no-one else will lend you anything. But they can also end up costing you a fortune in sky-high interest, so be aware of the problems.
- Payday loans – how to ask for a refund If you couldn’t repay a payday loan without borrowing again, it was “unaffordable” and you should ask for a refund of the interest.
- Three types of bad credit debt to avoid Guarantor loans, logbook loans and pay weekly shops such as Brighthouse – these don’t get as much publicity as payday loans but in many ways they are worse!
- Amigo – not a good way to improve your credit score.