Repairing Your Credit Rating

Entering a trust deed in Scotland will negatively affect your credit score. This negative effect is significant and very similar to the effect of declaring bankruptcy.

The credit reference agencies monitor public personal insolvency data. They will discover your protected trust deed once it’s listed on the Register of Insolvencies.

A record of your Scottish trust deed is now added to your credit report. This record will remain in place for six years in total.

You will also fall into arrears when your trust deed begins because you are not making the contractual debt repayments. Your creditors are likely to issue you with default notices.

Default notices also remain on your credit file for six years. Defaulted accounts will disappear from your credit report six years after the original default notice issue date.

Despite these records lasting for six years, you can begin to repair your credit rating as soon as you have been officially discharged from your trust deed.

Until you get discharged, there’s very little you can do. Your credit rating will remain poor. Borrowing is dangerous and may damage your credit report further. You could waste a lot of time and energy. Focus on completing your protected trust deed. Finishing it creates your chance to take positive action later. This guide is written for people who have been discharged already.

You’re issued with a Form 5 when you get discharged. This is your proof of discharge from your Scottish trust deed. Store it safely; you may need it to solve problems later.

Your trustee notifies Accountant in Bankruptcy (AIB). This Scottish government agency administers the Register of Insolvencies. This is the official record of protected trust deeds. The AIB updates your entry on the register. You can check your entry online. Look for the “Debtor Discharge Date”. If there’s a date listed there, your discharge is now official.

Your trustee may not discharge themselves for months. This gets listed as the “Trustee Discharge Date” on the register. They’re still working with your creditors to close your case. This doesn’t matter to you. Your own discharge enables you to begin work on your credit rating.

The credit reference agencies monitor official insolvency data. They should be aware that you’ve been discharged. Relatively quickly, your credit report should get updated with the discharge data. You can check this in the “public records” section of your credit report.

There are three major UK credit reference agencies. They are Experian, Equifax, and TransUnion. They may each hold different data about you. When you apply for credit in the future, you don’t know which agency the lender will consult. It’s therefore worth getting reports from all three of them.

Each agency offers paid subscription services. They can be expensive and we see little extra benefit from using them. You can access this information without paying. Free credit reports are available at:

• Experian (via MoneySavingExpert.com)

• Equifax (via ClearScore)

• TransUnion (via Credit Karma)

After discharge from a trust deed in Scotland, credit report errors are common. Your trustee is not responsible for errors. They don’t report to the credit reference agencies. The credit reference agency is only reporting what your creditors have told them. Lenders may report on a monthly basis, so you’ll need to wait a few weeks before making accuracy checks.

Lenders shouldn’t report inaccurate information about you. See Section (06) below regarding your data protection rights in this respect. Creditor reporting should change once you’ve been discharged. Too many lenders do a poor job of this. The three main problems areas are:

1. Default notices with issue dates after your trust deed began.

2. Default notices not marked as “satisfied” or “partially satisfied”.

3. Credit balances that haven’t been changed to zero.

It will be hard to improve your credit status if any of these problems exist. Resolving them may require you to take action. Find out how to deal with inaccurate reporting in sections Your data protection rights and common problems with default notices below.

Each of the credit reference agencies gives you a credit score. Experian score you out of 999. Equifax score you out of 700. TransUnion score you out of 710. These scores can seem important. People take them very seriously. The problem is these scores mean very little soon after a trust deed. So little in fact that you should probably ignore them altogether.

The credit agency is providing their view on how a typical lender might view you. Lenders don’t use these scores. Lenders use the detailed data presented in your credit file. They also use the data you provide in your credit applications. They combine these factors to compare you to their idea of an ideal customer. Their ideal customer is one that is likely to make them a profit. This can lead to outcomes that contrast with your credit score:

Example Outcome 1: Your credit score is poor. You apply for a bad-credit credit card. Vanquis and Aqua are two common examples. The interest rate is high and the credit limit is low. They don’t think you’re great at managing your money. You could use the full credit balance and only make minimum payments. They’ll charge you lots of interest every month. Even if you default in the end, they’ll probably have made money. You’re likely to get accepted for this credit card.

Example Outcome 2: Your credit rating is fairly good. You apply for a £5,000 loan from a high street bank. The lender sees past problems (now resolved) on your credit report. The interest rate is low, so their profit margin is thin. It’s a long-term loan, so there is a greater risk of default. If you default, they could lose thousands of pounds. You’re likely to get rejected for this bank loan.

We advise you to ignore your credit score for now. Make sure your credit report is accurate (see section (03) above). Make sure your credit accounts always get paid on time. Remember that utility and mobile phone providers may report to the credit agencies. Direct debits will help you to avoid damaging late/missed payments. Don’t build-up too much new debt. The more debt you have, the less credit new lenders will want to provide you. These are the building blocks to get better credit access in the future.

A credit search gets recorded when a firm checks your credit report. This happens when you make a credit application. The name of the searching firm gets recorded, but not the outcome of your application. Searches also get recorded when firms check your identity. This is common with insurance applications. These search records may remain on your file for two years.

It’s sometimes claimed recorded searches damage your credit score. This is generally untrue. Making a lot of credit applications could cause problems. Lenders may view this as a risk factor. You could be a victim of fraud or applying for more credit than you can afford. A lender might choose to avoid risk by not lending to you.

When looking for credit, write down a shortlist of products you like. Apply only for these. This restricts the number of searches recorded on your file. Some credit report services (see section (02) above) help match you to suitable credit products. Matching to products is based upon your current credit status. This could help reduce the number of searches reported on your file.

Creditors might not update your credit file properly after discharge. This could be because they haven’t yet been paid yet. The payment of final creditor dividends could take months. This isn’t your problem, but sadly it could cause you problems.

The Information Commissioner’s Office (ICO) oversees UK data protection law. We contacted them about this issue and asked what should happen after a trust deed. The ICO were clear in their response to us. The principle applied is that creditors should “reflect reality” in their reporting. Your credit report should reflect the reality of your financial situation.

You’ve been discharged from your protected trust deed. You no longer owe the debts that were included in it. Lenders should update your credit file to show you no longer owe the money. This means the balances showing should be changed to zero. Creditors should mark your default notices as being “satisfied” or “partially satisfied”. In Section (07) below we outline your options to force lenders to correct their errors.

Default notices get issued when you break the terms of a credit agreement. You get notified about them in writing by the lender. They are reported to the credit reference agencies. Default notices serve as an alert to other lenders checking your credit file.

Default notices are a one-time event. They’re issued on a single specific date. Your credit file lists that date. They often get confused with the monthly default status reporting. This account status reporting may show as “D” on your report for each account. These “D” entries can appear month after month for years. They’re not all new default notices. The date that you need to locate is the single original date your default notice got issued.

When you enter a trust deed in Scotland, you break the terms of a credit agreement. The lender should issue you with a default notice. If you were in arrears, this may have happened already (which is helpful). Default notices stay on your credit file for six years from their original issue date. The account then vanishes from your credit file. Default notices damage your credit score. Lenders are very wary of them.

A trust deed in Scotland also remains on your credit report for six years. What if a lender issued a default notice after your trust deed began? This can cause problems in the future. That account will still be listed on your credit report after your trust deed gets removed. You should ask your creditors to backdate default notices. They should get backdated to when your trust deed started. Both events will then disappear from your credit report at around the same time.

At the end of your trust deed, lenders should update your default notices. They should get marked on your report as “satisfied” or “partially satisfied”. They’ll affect your credit rating less once this update is complete. Satisfied signals that your debt was cleared in full. Partially satisfied signals a cleared debt which wasn’t fully repaid. Both are acceptable report entries for your creditors to use.

Your first request for backdating should go directly to the creditor. You could use their customer service or complaints channels to make this request. Using the complaint channel may be helpful. Complaints staff have more discretion to resolve problems. They also have less flexibility on timescales, which might speed things up.

If you make a formal complaint that gets rejected, you can escalate the complaint. You have the option to contact the Financial Ombudsman Service. They resolve consumer credit disputes between individuals and firms. They can compel firms to take action and/or pay compensation.

You could also take the matter to the Information Commissioner’s Office. They regulate firm’s data protection compliance. Incorrect credit reporting is a data protection issue. They may intervene if a firm isn’t meeting their data protection obligations to you.

Getting a mortgage soon after a Scottish trust deed is hard. It might turn out to be impossible. Mortgage lenders have a low risk appetite, though this has been improving. A previous trust deed gets seen by mortgage providers as a major risk factor.

We don’t know of any mortgage lenders that will lend within one year of discharge. We’ve only heard of one that will lend within two years of discharge. Once your trust deed has been discharged for two years or more, more mortgage products become available. Please note we’re not mortgage experts and this market changes constantly. Contact a mortgage broker for information about current lender acceptance criteria.

How can you improve your chances of getting a mortgage after a trust deed? It’s important to understand how mortgage lenders assess risk. We describe this approach as “thinking like a lender”.

High loan-to-value lending is risky for a mortgage lender. This lending occurs when your mortgage deposit is small. If property prices fall, the lender will begin to lose their security. If you default, the property value could be lower than the mortgage balance. If you have little equity, there’s less for you to fight for if money gets tight. With past credit problems, it’s especially important to save up the largest deposit you can. You’ll gain access to more mortgage products on better lending terms.

Affordability is a key test for mortgage lenders. They check you can afford your new mortgage payment. They’ll assess your income, bills, and expenses when calculating this. If you’ve built up new debts, it will reduce the size of mortgage they’ll offer you.

High street banks are very cautious mortgage lenders. If you recently got discharged from a Scottish trust deed, they’re unlikely to lend to you. There are many other mortgage lenders that aren’t present on your high street. You won’t have heard of most of them. They occupy lending niches that the major banks avoid. These niches include persons with imperfect credit histories. Many such lenders will not deal with you directly. They deal instead with independent mortgage brokers.

We recommend that you contact an independent mortgage broker. In the years after a trust deed, they’re your best bet to find a mortgage product that meets your needs. If possible, get a local broker recommendation from a friend or colleague. Be entirely open and honest with the broker. Your honesty will help you to avoid disappointment and wasted time later.

Some mortgage brokers will tell you that getting a mortgage is impossible. They may say you cannot get one until six years after your discharge. This is untrue and signals that this is the wrong mortgage broker to use. They don’t understand the impaired credit mortgage market. Other mortgage brokers specialise in this area and are better able to help you.

In summary, to improve your chances of getting a mortgage after a trust deed:

1. Save up the largest deposit you can.

2. Be realistic about what you can afford.

3. Ensure your credit report is accurate.

4. Build up some positive recent credit history.

5. Don’t build up too many new debts or commitments.

6. Allow time; the longer ago your discharge the better your chances.

7. Use the services of an independent mortgage broker.

This topic includes hire purchase, conditional sale agreements, and vehicle leasing. Providers of car finance take a risk when they lend to you. This means your credit rating is important to them. Before applying for car finance, take steps to improve your credit score. The above sections of this guide will help you to do this. Not only will it be easier to get vehicle finance, it could cost you much less.

Remember that time is a major factor in improving your credit score. If you can wait to get a new car, you should do so. The finance costs could be lower and you may have more vehicle choice.

The lender checks you can afford the finance payment. If you’ve taken out other credit, a new car payment may appear less affordable. Be realistic about the car you want to acquire and its monthly cost. The further you stretch yourself financially, the less likely you’ll get approved for finance.

Which car finance providers should you use? We suggest applying to a mainstream finance provider first. A lower interest rate will save you money. Some firms specialise in offering finance to people with poor credit scores. The interest rates are higher (often much higher) so this should be your last resort. Car dealers tend to use a panel of finance providers, so they might help match you to a suitable lender.

Credit cards are useful. If you have work expenses, they provide time to reclaim your cash. If you travel, they enable access to hotel and car hire services. They can add protection for online purchases. Credit cards can also help you to demonstrate responsible borrowing. This may improve your credit score. Small regular purchases, repaid fully every month, are the best way to do this.

Credit cards are also risky. The interest rates tend to be high. Credit limits increase over time. Making your minimum repayment clears little debt. Credit card debt can take a long time to repay. These risks are a profitable for lenders. If you build up a long-term credit card balance, lots of interest gets charged for a long time. This is why providers like Vanquis and Aqua offer people credit cards soon after their trust deed ends.

With this balance between benefits and risk, think carefully about your priorities. Being able to get a credit card doesn’t mean you should get one. As your credit rating improves, get rid of your high-interest credit cards. Swap them for a mainstream credit card instead. This further helps to rebuild your credit status and could save you money.

Myth 1 – Entering a protected trust deed puts you on a credit blacklist. This is easily dealt with; credit blacklists do not exist. There is no credit blacklist you can get added to.

Myth 2 – Your address gets blacklisted due to your trust deed. We refer you to the above answer; there is no credit blacklist. The credit rating of other people living in your property is unaffected.

Myth 3 – Your family or partner’s credit access gets affected. This is generally untrue. The exception is where you’re “financial associated” with another person. This happens if you have a joint financial account like an overdraft or mortgage. The association gets recorded on your credit files. The other person’s credit rating is unaffected, but some lenders may view this link as a risk.

Myth 4 – Credit application rejections discourage other lenders. Lenders can’t see whether your other applications were successful. However, many searches recorded on your credit report could cause issues. See section (05) above.

Myth 5 – You should use a credit repair service. These services cannot remove accurate data from your credit report. For example, they cannot remove the record of your trust deed. You can resolve any factual errors yourself (see section (03) above).

Credit has three main purposes. It helps people to buy expensive items they couldn’t afford otherwise. Homes and vehicles are the two major examples. Another example is investing in your own education. Credit helps people to complete smaller purchases sooner. This is useful if the borrowing cost is fair and affordable. Finally, it can spread emergency costs such as home or car repairs.

Credit becomes a problem when costs spiral. This happens when borrowing costs are high or your debt gets repaid slowly. It also happens when your repayments aren’t genuinely affordable. Few people can buy houses or cars without credit. Dealing with emergencies is different. If you save an emergency fund, you’re less likely to need emergency credit. Emergency credit is usually expensive.

You’ve finished your trust deed. Could you save your old trust deed payment? Could you save part of it? You’ll soon build up an emergency fund. Your reliance on credit reduces and you could avoid interest costs. Financial advisers suggest building up an emergency fund that will cover 3 to 6 months of your bills and expenses. This is a long-term project, but making a start quickly reduces your risk of getting into problem debt again.

This guide has been written specifically for those finishing their protected trust deed. Much of this guide applies equally to those discharged from bankruptcy in Scotland. Both are formal insolvency processes that work in similar ways.

The debt arrangement scheme in Scotland usually causes less credit rating damage. This is also true for debt management plans. Because they’re not insolvency, you may find it easier to access new credit (including mortgages). For example, some mortgage lenders offer specific products for DMP users. Parts of guide will still be helpful as you rebuild your credit rating.

We regret that our advice team cannot directly answer your credit rating questions. Our advice line is reserved for debt advisory calls.

If you have a credit rating question, please visit our forum. You can search the forum for the information you require. If you register you can ask your own questions and get expert help.