A credit report is the summary of a borrower’s credit history.
There are three credit reporting bureaus, Experian, Equifax and TransUnion. These agencies collect and collate the information which is reported to them by various agencies including banks, debt collectors and government agencies.
These reports are made to the credit agencies periodically and in bulk, usually on a monthly basis. This means the information is not ‘live’ and it may take a number of weeks for any changes to be reflected on your credit report.
There are a number of companies who allow individuals access to their credit report. Many of these will allow you to view the information held by all three credit bureaus.
A credit score is a way of summarising information collected about an individual as a numerical score. Many companies will present this score positioned on a sliding scale from good to poor.
This score will vary between each credit reporting bureau as each bureau will have different models of calculation with greater or lesser emphasis on certain factors.
In general, it can be assumed that individuals with higher credit scores are regarded as responsible borrowers and are more likely to be accepted when making an application for credit.
A credit report is used primarily by lenders when considering an application for credit.
The acceptance criteria and the way in which a report is used will vary between lenders. It is not usual for lenders to publish this criterion, partly because credit history is one of a number of factors which are used to decide whether an application will be accepted.
Not all lenders will consider the full credit report and many will now reply on a credit score only with a set threshold for acceptance. This is more common with low value credit such as credit cards and payday loans.
If there is information which you believe to be inaccurate you should start by telling the credit bureau. You can do this through one of the online sites which allows you to access your report, most platforms will make this very easy and guide you through the process.
Most credit bureaus will investigate your report and respond within 30 days. If you have any documents to support your position it would help if you also submit these with your dispute.
If you believe there are extenuating circumstances which may explain some of the entries on your credit report, you can enter a note to be added to your credit report. This will need to be less than 200 words and will need to be approved by the credit bureau.
Circumstances which may warrant explaining would have to be extraordinary and beyond your control (eg a coma or fraud).
A financial association is created when an individual takes out credit with another person (such as a mortgage or guarantor loan). These two credit files will then be linked, and that person will be listed under the ‘financial associations’ section of a credit report.
This association will have an impact on both reports, increasing and decreasing the quality in direct correlation. For example, being linked to a person with a high score is likely to make lenders view any application more favourably.
Lenders do this to make sure that any associated person can rely on the support of the other should they have trouble making their own payments.
Most agreements contractually require regular payments, for example a loan which must be paid by equal instalments of £250 on the 2nd of each month, or a credit card with a minimum payment due by the 15th of each month.
When one or more payments is missed, or delayed, the account falls into arrears. This means that the agreed payment has not been received at the agreed time.
Any arrears will be marked on your credit report up until the payment is made.
The arrears will be expressed on your credit report either by amount (eg £50 in arrears) or time (eg two months in arrears). Once the arrears are satisfied the account will show as up to date. The historic report will however remain for a period of six years. This means other lenders will be able to see that you have missed payments in the past.
Missing payments and falling into arrears will make it harder to get future credit.
When a debtor misses payments and becomes two months in arrears they will receive a statement entitled Notice of Sums in Arrears. This is a statutory notice which will be sent to the debtor directly.
Further notices will be sent at six monthly intervals whilst the account remains in arrears.
If you continue to miss payments and fall into arrears, the lender may choose to default your account.
There is no standard rule as to how long your account will be in arrears before it is defaulted. This is the decision of the lender and varies from company to company. The decision will be made to default the account when a lender feels there is no way for the debtor to get back on top of their payments.
When an account is defaulted, this is the end of any agreement you have with your lender as the original terms of the agreement (most often the repayment schedule) have been broken. This means there is no longer any ‘live’ agreement to advance credit and the lender can demand full repayment of any sums outstanding.
Before an account defaults, the lender can only demand repayment of any amounts which have fallen due under the original agreement. This means the payments you have missed and should have paid to date.
For example, if your credit card agreement requires you to make a minimum payment each month and you have missed three of these payments, the lender can only require you to make those three missed payments to bring the account up to date. The agreement states that this is all that is required to continue providing credit and the cannot, before the account is defaulted, require you to repay the full balance. Once this account is defaulted, that agreement has ended and you can be required to pay the full amount outstanding immediately.
As defaulting ends the original agreement, an account can only be defaulted once. You cannot end an agreement twice!
Once the account has been defaulted a creditor can take further action to pursue the debt including collection activities and issuing a claim in court.
When an account is defaulted, the default will be reported to credit bureaus and the status of the account will show as ‘defaulted’ on any future reports. This account and the default status will be shown on your credit report for six years from the date of the default being registered.
Once any account has defaulted, you will find it very difficult to obtain further credit. The only way to begin repairing your report (if you cannot pay the debt in full), is time.
Lenders are very unlikely to lend to any person with a history of defaulted accounts as this demonstrates that the lender is not likely to recover any credit they advance. Or at least they will find it difficult.
This is true regardless of whether there is only one defaulted account or many.
The only way to stop this default from being reported and remove it from your credit report is to pay the outstanding balance in full. If a settlement is agreed to reduce the debt and write off any remainder, the account will show as ‘partially settled’ and the default will still be visible on your credit report.
There is nothing that can be done to rectify this except paying the amount in full. Any company or individual who promises to “clean up” these defaults cannot do this.
We cannot remove historic default reports. These will stay on your file for 6 years from the date of default.
In some rare instances, lenders may take the decision to close your account and write off any amount owing. The accounts would then not be reflected on your credit report. This is though very unusual.
There is case law which prevents claimants from registering a new default whilst the account is unenforceable. This is because a credit report is designed to give any future lenders an idea of your behaviour as a debtor.
This example suggests that, where you are exercising a statutory right not to pay (because the account is unenforceable), it would be misleading to report that the agreement has been broken and the account defaulted as a result of you exercising that right.
In practice however, it is extremely difficult to prevent the default from being registered with credit reference agencies. If you instruct us against the debts that you are facing, it would be best to assume that any accounts which have not already defaulted, will do so during the course of our work.
Where you have other accounts being reported as defaulted on your credit report, one further default does not, arguably, much affect the overall impression your report will give. In short, it may not be worth the fight to remove the new default report.
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