How long do credit slip-ups stay on your credit report?
By Emma Lunn
If you've made late payments or filed for bankruptcy in the past, the damages will be chronicled in your credit report. But how long must you pay for past transgressions? Here are some common credit offences and how long they'll cast a shadow over your credit.
An individual voluntary arrangement (IVA) is a legally-binding agreement between you and your creditors, generally offered as an alternative to bankruptcy. You make regular payments to an insolvency practitioner, who divides your payments among your creditors. It freezes your debts and allows you to pay them back over a set period, usually five years. Any money you then still owe is written off.
How long it stays on your report: Six years from the date the arrangement starts. That's typically one year after the IVA has been completed, according to the Debt Advice Foundation.
Bankruptcy allows you to write off all your unsecured debts so that you can make a fresh start. To qualify for bankruptcy, your unsecured debts need to outweigh your assets, such as property and vehicles. Going bankrupt is a big decision and is generally more suitable for people whose financial situation is unlikely to improve in the foreseeable future.
In October 2015, the government raised the minimum debt for which a creditor can force a person into bankruptcy from £750 to £5000. And in April 2016, the Insolvency Service changed the way residents in England and Wales apply for personal bankruptcy. Those residents can now apply online and no longer need to attend a court hearing. The process now costs £655 instead of £705.
How long it stays on your report: A discharged bankruptcy stays on a credit report for six years from the date of the original order. However, if you're subjected to a bankruptcy restrictions order, which is rare, it can extend the credit report notation for up to 15 years. A restriction order may be applied if the Official Receiver (the court's bankruptcy officer) considers you to be dishonest during the bankruptcy process -- if you failed to disclose your bankruptcy when applying for new credit, for example.
If you fail to pay the minimum amount due on your credit card bill by the due date, your late payment will most likely be reported to the credit bureaus. It's not just late credit card payments that could end up on your report -- if your utility company reports to the credit reference agencies, future lenders may see a record of, say, your late water bill payments as well. This can apply for other types of household bills, too.
Not all utility companies report payments to credit reference agencies, but credit bureaus are developing relationships with an increasing number of companies in a bid to gather more information on individuals.
How long it stays on your report: Whether you close the account or keep it open, future lenders will be able to see late payments for six years.
"Open accounts stay on your report indefinitely and carry a rolling six-year history," says James Jones, head of consumer affairs at Experian. Settled -- or closed -- accounts and the payment history associated with them remain on credit reports for six years.
Late payments become less important to lenders as time goes by, however. "Missed payments have a diminishing effect as they age," Jones says.
If you owe money to someone, that person or company can go to the court and say that you have not repaid them. If you don't respond, the court may issue you a county court judgment (CCJ). You will receive a letter in the post explaining what you owe, who you owe it to, how much you need to pay and the deadline to make your payment. It gives your debtors permission to seize your property or garnish your wages.
How long it stays on your report: If you pay your debt in full within 30 days of receiving the order, the CCJ will not appear on your credit report. Otherwise, it will stay on your credit report for six years from the day you received the judgment, regardless of payment.
A debt relief order (DRO) is an official order that freezes your debts, usually for a year. It can be granted only in particular circumstances and only includes certain debts. It's suitable for non-homeowners on low incomes with qualifying debts of less than £20,000 in England and Wales, and £15,000 in Northern Ireland. After the DRO period, any remaining debts included in the DRO are written off.
How long it stays on your report: Although a DRO typically lasts a year, it will stay on your credit report for six years from the date the arrangement starts.
If you miss payments or cannot bring an account up to date, your creditor will eventually default the debt, according to debt charity StepChange. You won't be able to use the account anymore to borrow money, and your credit provider will send the debt to a collection agency.
How long it stays on your report: Defaulted accounts stay on your report for six years from the default date, regardless of repayment.
closed in good standing
Unlike the above transgressions, an account that has been run well, with no defaults, would be viewed positively by lenders. Luckily, when you close it, it doesn't just disappear from your credit report.
How long it stays on your report: Closed accounts are kept on your credit report for six years from the settlement date.
can I do if there are blunders on my report?
Credit mistakes can make it more difficult or impossible for you to obtain credit. For instance, if you have an IVA or DRO, you'll be unable to borrow money until the order has finished.
However, lenders do not give equal weight to all credit report black marks.
Paying off an overdue account, for example, is one way to balance out your past mistakes. Although accounts (and the late payments associated with them) stay on your report for six years, they'll be labelled as "settled," "active," "defaulted" or "delinquent" on your report, says Lisa Hardstaff, credit information expert at Equifax. Naturally, "settled" looks better than "defaulted" to lenders, even if that particular account has a history of late payments.
Time is also a healer of credit report wounds.
"The impact of missed payments on a credit report will generally reduce the older they become and as more positive credit activity is added," Hardstaff says.
If you have negative information on your credit report, it's possible to add a "notice of correction" to explain what went wrong. This is a statement of up to 200 words that's visible to lenders checking your report. You can request a notice of correction via the three credit rating agencies (Experian, Equifax and Callcredit).
Additional reporting by Benjamin Salisbury.
Updated: 8 April 2016
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