Adverse Credit History
Banks and building societies have become much more sympathetic in recent years to people that have had previous credit problems and with people that have current existing credit problems. It is still possible to obtain a mortgage up to 100% of the properties value in some cases.
Credit and Credit Problems
Sometimes you need credit to get what you want and then sometimes you may have problems repaying the credit
The below information topics explains different elements of credit from credit checks to CCJ’s and Bankruptcy.
Credit Reference Agencies
All of us in the UK have financial information that is stored at what are known as Credit Reference Agencies. These agencies provide lenders with factual information which in turn helps them assess our suitability for credit.
Credit Rating and Credit Scores
You have to be approved for a loan, which with most lenders entails you being credit checked, which means your history will be looked into.
A credit rating checks elements like reliability in paying back any previous loans, employment, marital status, age and address history will all be examined.
If you have previously taken out a loan and have failed to make payments resulting in county court judgments (CCJ’s ) against you, then you will be classed as a high risk borrower. If you have changed jobs frequently or continuously moved home then you will probably be looked upon as unreliable, because all of these things affect your credit rating. Any previous loan defaults, mortgage or rent arrears, bankruptcy, IVA will all affect your credit rating adversely.
Even so, you should not give up – you can still get a loan even after having CCJ’s or arrears and if you keep up the regular payments this can only help you to improve your credit rating for the future. Improving your credit rating will mean you will have no difficulty finding a loan in the future.
Every element of a credit check gets a score. Having been in the same job for 10 years, lived at your current home for 15 years and previously repaid credit back without problems gains positive scores. Never had credit, have CCJ’s or have no home and are unemployed add negative scores. All the scores are added together to get your total credit score or credit rating.
Credit Problems – Credit Arrears and Defaults
It is virtually impossible that we will get through life never having credit whether it be a mortgage, loan, credit card, store card or any other borrowed finance.
The biggest credit most of us will ever borrow is a mortgage to buy a house but you can get in arrears or default with any credit repayment.
If you don’t make the agreed usually regular monthly payment by the stated date then you will be in arrears. If you pay the payment before the next payment is due you will hear nothing. Sometimes you might get a polite letter informing you that you missed a payment requesting you make the payment within seven days.
If you still haven’t made any payments after several missed monthly payments then you become further in arrears. By this time court action will be being threatened and only repaying some or all of the monthly repayments can stop this.
If you fail to make any repayments after usually 3 months then you are classed as defaulting on the credit agreement and court action will be taken. This could lead to a CCJ or if its a mortgage or secured loan then your home could be repossessed.
Before this you should have sought independent advice, consolidated your debts to reduce the amount of separate repayments you have to make each month or tried to come to some kind of agreement with your creditors.
Credit Problems – CCJ’s
A CCJ or County Court Judgment is an official claim against you by Creditors, Lenders or Local Authorities through the county court for money you owe.
Who are likely to apply for CCJ’s:
Creditors – This can be companies who provide you services like electricity, gas, water, internet connection through to retail outlets that have allowed you products on credit.
Lenders – This will be companies that have actually lent you money and credit card companies.
Local Authorities – Being in Arrears or Defaulting on rent repayments or not paying council tax.
The consequences of having a CCJ against you:
This CCJ will go on your credit file and will affect your credit rating. It will make it more difficult for you to get a credit card, loan or mortgage in the future. You will also incur costs for having a CCJ as you have to pay the creditors court costs.
The only benefit to you:
The creditor should stop adding interest to the amount you still owe them and the court will decide on a repayment plan. So long as you keep up the payments that the court decided on you should have no more problems with the creditor.
However, remember – If you don’t keep up these payments the creditor could call in the bailiffs and you will have a CCJ against your name affecting future claims for credit.
Credit Problems – IVA
An IVA is not the same as a Debt Management Programme which is less informal. An IVA is arranged to help you pay off your debts in a way that is affordable to you.
Individual Voluntary Arrangements
An IVA is based around one monthly payment over a period of 60 months. You will be closely involved in calculating the monthly repayment, as you will be asked to make known all of your assets, liabilities, income and your cost of living. This information will ensure that you will not get into even more debt, as the amount payable to creditors is determined by the amount you can afford to pay after your normal cost of living has been deducted.
An IVA proposal has to be prepared by a licensed Insolvency Practitioner (IP). As the debtor you will be sent a copy of the proposed agreement for you to approve. Should you disagree at this point with anything in the proposal you should negotiate any alterations. The IP will then present it to the creditors. Once the proposal is approved the debtor will take it to their local county court to have it registered. A copy of the proposal is sent to each creditor giving notice of any creditors meeting that may be required. Creditors vote to accept or reject the proposal, they may wish to add their own modifications but can only do so with the debtors consent. In the case of a consumer IVA creditors usually prefer to vote by fax or post rather than attend any meeting. The debtor will usually be asked to make sure they can be contacted by phone on the day of voting.
The rules of an IVA state that providing 75% (in value terms) of those that have voted, vote to accept the proposals (with or without modifications) then the IVA becomes legally binding on all other parties whether they voted or not
When an IVA is accepted the IP monitors the IVA’s progress and ensures that the terms and conditions that were agreed to are properly adhered to. It is the debtor’s responsibility to pay the agreed payments to the IP who will then ensure that these payments are distributed to all creditors on a pro-rata basis. It is in the debtors own interest to maintain their payments as failure to pay will almost certainly result in the failure of the IVA. If a debtor finds at any stage they have difficulty paying they should contact their IP who may be able to re-negotiate with creditors.
Once the IVA has been completed in some cases the debtor may not have actually paid off all of their debts, but the outstanding balances are written off. The debtor is considered free and can make a fresh financial start.
If you have an endowment policy linked to your mortgage, then you may have to cash it in to use the proceeds to pay your creditors. The same is likely with any equity you may have in your home, the fact that you have entered into an IVA with creditors means that such drastic measures may be expected of you by your creditors to pay your debts.
Lenders use the credit score to ascertain the level of risk. Some lenders only want high scores where some will lend to people with lower credit scores.
Credit Problems – Bankruptcy
Anyone can go bankrupt. You are likely to go bankrupt if you have many debts that you simply cannot repay.
Bankruptcy is to free you from unmanageable debts. This should help you to legally make a fresh start and stop you sinking further into debt. The aim of Bankruptcy is to share out your remaining assets fairly and legally among your creditors to help them recoup the debt.
If you should disagree with a bankruptcy order you should try to come to some agreement with your creditors before a petition has been presented, otherwise it can be very expensive to fight the petition, it is in your own interest to cooperate. A Court will make a bankruptcy order after a bankruptcy petition has been presented.
The petition is presented:
A – by yourself, which is called a debtors petition.
B – by one or more creditors who are owed at least £750 by you. If this amount is unsecured they can present a bankruptcy petition against you. This is called a creditor’s petition.
Bankruptcy petitions are presented at a county court near to where you live and a local Official Receiver will deal with it. Even if you are not in the country at the time a petition can still be bought against you if you have had residential or business connections in England or Wales within the last 3 years.
The Official Receiver is responsible for administering your bankruptcy and protecting your assets from the date of the bankruptcy order. The receiver will look into your financial affairs before and during bankruptcy, they will report to both the court and your creditors. They will look for any criminal or dishonest behaviour in connection with your bankruptcy.
The Official Receiver will act as trustee of your bankruptcy estate, unless a insolvency practitioner is appointed. An Insolvency Practitioner (an individual who specialises in insolvency work) can be appointed trustee instead of the Official Receiver. They must be authorised by either the Department of Trade and Industry or the appropriate professional body.
The Official Receiver will notify all organisations of the bankruptcy. Any person or organisation that can provide any details of any assets or liabilities you have will be asked to do so. Utility suppliers, land registry, national savings, courts, bailiffs, banks, pension suppliers, landlords will all be asked for information which will affect the bankruptcy.
What you must do as a bankrupt:
- Provide information about your financial affairs. Your Official Receiver may send you a questionnaire that you must fill out fully, and they may also want to interview you at their office.
- You will have to supply a list of all your assets and all details of what you owe to whom.
- You will have to hand over all your books, records, bank statements, insurance policies and anything else relating to your financial affairs.
- Your Trustee should be made aware of any income or redundancy payments you incur or any property that becomes yours during your bankruptcy
- You will be made to stop using such things as your bank, building society, credit card and similar accounts during bankruptcy.
- You will not be allowed to obtain credit of £500 or more from any person without first disclosing the fact that you are bankrupt.
- You will not be allowed to make payments directly to your creditors during bankruptcy proceedings without firstly consulting your Trustee or Insolvency Practitioner.
What it will cost:
On the third anniversary of your bankruptcy you may be asked to pay the courts fee, some courts will waver this if for instance you are claiming income support. In some circumstances the Court may waiver this fee; for example, if you are on Income Support.
You will have to pay a deposit towards the administering of the bankruptcy.
If you are a married couple both applying for bankruptcy you will have to pay separate fees, unless all parties apply for a joint bankruptcy petition.
Declaring yourself bankrupt:
If you want to declare yourself bankrupt you should contact your local Court. They can give you the name, address and telephone number of the nearest County Court that deals with bankruptcy.
The Court will either hear your petition straight away or arrange a time for the Court to consider it.
The Court can do one of four things at the hearing:
- If the court decides it needs further information before it can make any decision it will Stay (delay) proceedings.
- The court may decide to dismiss the petition and may decide an administration order would be more appropriate.
- The court may decide to appoint an Insolvency Practitioner – the Court thinks that an Individual Voluntary Arrangement would be more appropriate. If you do not wish to enter into such an arrangement, you should inform the Court.
- The court may make a bankruptcy order. You will be bankrupt the moment the order is made by the Court.
If your unsecured debts are less than £20,000 and in the previous 5yrs you have not been bankrupt or made an Individual Voluntary Arrangement with your creditors, then the administration of your bankruptcy should be quicker and simpler. The court will issue a Certificate of Summary Administration. The official Receiver will be your Trustee. You will be Freed or discharged from bankruptcy between one and two years from the date of bankruptcy order.
If the above conditions are not met a Certificate of Summary Administration will not be issued and your discharge from bankruptcy will three years from the date of the bankruptcy order.
Bankruptcy and your Credit Rating
Bankruptcy will be registered with credit reference agencies and will remain on your file for six years. Even after this time you may have to declare your bankruptcy if applying for a mortgage.
If you have been declared bankrupt before, within the last 15 years, you will not be automatically discharged. You will only be able to apply to the Court for a discharge 5 years after the date of your current bankruptcy order; even then the Court may refuse or delay discharge.