Many people with debt problems are mainly concerned about the impact of any debt restructure, such as entering into an Individual Voluntary Arrangement (IVA), upon their credit rating and whether they will be put on a "blacklist" by creditors. There is also a great deal of confusion between an individual's "credit score" or "credit rating" and the overall credit history.
Every adult in the UK will have a credit history and credit rating or credit score. The credit score is made up of a list of factors from the finance company to which we apply for credit. The credit score of an individual will vary EVERY time an application for credit is made and every time a creditor changes its own lending criteria.
Banks/Finance companies will use the following types of criteria -:
As you can see "previous credit history" is only one of the criteria used to determine an individual's overall credit score. Obviously if the individual's current credit history shows arrears and "defaults" with other financial institutions then this has an adverse impact of future borrowing potential. All of this seeks to demonstrate that there is no such thing as an actual "blacklist" each of us has a credit file which the lenders have access to and this credit file helps partly determine our future ability to obtain credit.
All banks and financial institutions will refer to an individual's credit file, as part of the application process, in determining overall credit score. The two main credit reference agencies in the UK are Experian (www.experian.co.uk) and Equifax (www.equifax.co.uk) and anyone can get a copy of their own credit file by applying to these agencies online (the current cost is approximately £2).
A credit file basically contains everything which has happened in one's personal credit history over the previous six years. Every application for credit; every live finance agreement and those which are completed; every missed payment (usually over previous 18 months) and recent late payments are all captured on the credit file. More importantly an IVA or even a bankruptcy would be endorsed upon the credit file and then usually automatically removed after the six year period.
One of the most common questions we are asked is the impact upon an individual's credit rating by living with someone, or a previous occupant of a property, who has/had a poor credit rating/bad credit history. The increasing sophistication of credit scoring and credit files has generally made this much less relevant because the banks exclude associated information which does not directly relate to the individual applicant (unless there is joint finance already in existence). Where there is difficulty in distinguishing between two individuals at the same property e.g. father and son with the same initials, then "A Notice of Disassociation" can be issued to the credit reference agencies. A note would then be attached to the individual credit file stating that there is a difference between two individuals in the same household.
For those entering into an IVA or contemplating bankruptcy it is well worth reiterating that the impact upon the credit file is for six years only. At the end of the six year period the fact of entering into an IVA is completely removed from the record. The six year timescale also applies to bankruptcy unless a Bankruptcy Restriction Order (BRO) has been issued against the individual for longer than six years.
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Total unsecured debt : £4000