Rebuilding A Credit History

[yorkshirejames]

Folks,

I had a talk with someone yesterday, who is in a better position than most people (in that he now has a new job and a steady income, after a period of unemployment).

My question is whether it is possible to recover from a bad credit history. Most of the people that the company I work for give advice to are people considering IVA/bankruptcy (and I personally just deal with ltd co's not individuals), not people looking to recover.

The individual has unecured debts of around 20,000 and prior to getting his new job was looking to go bankrupt. He has had six months of no income and six months of bounced direct debits etc, so he has gone from an excellent credit history to a poor one. He doesn't own a house, but was looking to buy one in the next few years.

His question is whether it is worth making payments to catch up with loans etc, or whether he is best declaring that he is unable to pay his debts (which is a correct statement), going bankrupt, then once discharged trying to build a credit history again. Does anyone have any useful suggestions please? Happy to pass his details across to someone who does specialise in advising individuals if anyone would like.

[Alison Jones]

HI

Might sound a bit odd but someone once told me that if you had poor credit history the best way to repair it is when able to get a credit card pay for items on it that you may otherwise have paid for in cash ie food and make sure you pay the card off in full each month, was told that it may take a while but doing this every month repairs the credit history as shown to pay off in full without incurring interest. Person doing this would need self control to only pay for items they would have paid for in cash so as not to get into further debt by impulse buying, buying items they cannot afford to pay back.

Alison

[vad.ch]

I dont specialise in this area, but 20k is not worth going bankrupt in my opinion. It will take a while until discharged and I would imagine the 6 months of poor credit history will be more or less ignored by lenders who see stability after a couple of years.

[The Panda]

It takes 7 years to clear all bad credit off your report. Thats from the day it was logged into your credit rating.
The best way forward is to offer to pay a punative amount to each making sure he pays the same to each. Get the interest rate frozen.
There is not much he can do about repairing his credit rating whilst all this is hanging over him.
Further down the line if he has lump sums he could offer to settle one debt at a time at a much lower amount then it actually is. Some companies will go for this and others wont.
He will not be able to get any credit at all until the seven years have passed and it comes off his credit rating and then as another person posted, get a card, Capital one do a high interest one especcially for people that have no credit rating, which is where he will be in 7 years time. You then buy on this card and pay off straight away and your credit rating will then start to repair.
He will very unlikely be able to get a mortgage of any kind until then.

[yorkshirejames]

I dont specialise in this area, but 20k is not worth going bankrupt in my opinion. It will take a while until discharged and I would imagine the 6 months of poor credit history will be more or less ignored by lenders who see stability after a couple of years.


It takes 7 years to clear all bad credit off your report. Thats from the day it was logged into your credit rating.
The best way forward is to offer to pay a punative amount to each making sure he pays the same to each. Get the interest rate frozen.
There is not much he can do about repairing his credit rating whilst all this is hanging over him.
Further down the line if he has lump sums he could offer to settle one debt at a time at a much lower amount then it actually is. Some companies will go for this and others wont.
He will not be able to get any credit at all until the seven years have passed and it comes off his credit rating and then as another person posted, get a card, Capital one do a high interest one especcially for people that have no credit rating, which is where he will be in 7 years time. You then buy on this card and pay off straight away and your credit rating will then start to repair.
He will very unlikely be able to get a mortgage of any kind until then.

Thank you to both. Two very useful responses, which conflict a bit. The guy will be able to resume the level of repayments asked for by the various lenders from now (was paid a salary last week) however these payments total a four figure amount. His question/wish is whether it is worth keeping up these repayments, or trying to get his slate wiped clean via bankruptcy, so that in future whatever he earns is all his. Any more bits of feedback please?

[Alison Jones]

There are companies that help people out of debt - think Citizens Advice bureau offer something like this where they contact companies that someone owes money to and arrange an affordable payment scheme, may take a long time to clear debt but does not damage credit score as much as bankruptcy does. Depending on what industry your client works in if they have been declared bankrupt may not be able to get another job in the future, my sister works in insurance and told me that anyone who gets declared bankrupt would be out of a job. There may be other industries that do the same.

Alison

[yorkshirejames]

There are companies that help people out of debt - think Citizens Advice bureau offer something like this where they contact companies that someone owes money to and arrange an affordable payment scheme, may take a long time to clear debt but does not damage credit score as much as bankruptcy does. Depending on what industry your client works in if they have been declared bankrupt may not be able to get another job in the future, my sister works in insurance and told me that anyone who gets declared bankrupt would be out of a job. There may be other industries that do the same.

Alison

Don't think he has an industry as such, I would describe him as mid-level ops management. This is a good point however.

I might suggest to him that we contact some of the creditors on his behalf and offer a settlement to them, just in case they bite.

[The Panda]

There are companies that help people out of debt - think Citizens Advice bureau offer something like this where they contact companies that someone owes money to and arrange an affordable payment scheme, may take a long time to clear debt but does not damage credit score as much as bankruptcy does. Depending on what industry your client works in if they have been declared bankrupt may not be able to get another job in the future, my sister works in insurance and told me that anyone who gets declared bankrupt would be out of a job. There may be other industries that do the same.

AlisonYou are correct in not going bankrupt. It can be an easy option, well, easier option but it does major damage.
Citizens advice will talk a person through the mine field but it will still come down to paying what you can.
I was in this position many years ago through no fault of my own. Lost my job, 2 kids, a mortgage blah blah.
Payed all essential stuff and the mortgage but had to repay credit cards at a punitive £1 a month as a token to say, yes I admit I owe you money but cant pay it yet. They did not like it but as I was offering to pay something they had by law to accept my offer. They did badger me for some time to put up the payments but I held strong because if I did I could not of fed my kids or paid the mortgage.
My situation did not improve for some time and in the end when I did get some cash I offered to pay 50% or less of outstanding debt.
This was accepted in all cases. The debt was written off. Seven years later my rating was zero with no bad debt and was able to get a small credit card but with fairly hefty fees. I never paid the fees as I paid it off as soon as the statement came in. My credit rating is now top notch some 14 years later but I dont use cards any more unless I have to.
There are more people than you think in this situation or a pending situation in the near future.

[papverpoppies]

Folks,

I had a talk with someone yesterday, who is in a better position than most people (in that he now has a new job and a steady income, after a period of unemployment).

My question is whether it is possible to recover from a bad credit history. Most of the people that the company I work for give advice to are people considering IVA/bankruptcy (and I personally just deal with ltd co's not individuals), not people looking to recover.

The individual has unecured debts of around 20,000 and prior to getting his new job was looking to go bankrupt. He has had six months of no income and six months of bounced direct debits etc, so he has gone from an excellent credit history to a poor one. He doesn't own a house, but was looking to buy one in the next few years.

His question is whether it is worth making payments to catch up with loans etc, or whether he is best declaring that he is unable to pay his debts (which is a correct statement), going bankrupt, then once discharged trying to build a credit history again. Does anyone have any useful suggestions please? Happy to pass his details across to someone who does specialise in advising individuals if anyone would like.

These people (http://www.nationaldebtline.co.uk/) are good and it is free and independent.

They worked with someone I know, and helped them get their life, and finances back on track.

Hope they help this person.

Poppy

[LaShel Bookkeeping]

It is definitely 7 years to repair a credit history. Bankruptcy is now discharged after only 1 year now but obviously this is a serious consideration as your house has to get signed over & or you wife has to buy your share back. Also worth considering is that fact that if any insurances are paid out after death they go straight to your bankrupt estate instead of your spouse/children etc.

I would see if some sompanies would accept short settlements, the debt balances will lie on the credit file but marked as "S" for satisfied. If this is not possible just start paying back people slowly with pro-rata payments (CAB will do this). The credit file will be clear 7 years after your credit file has cleared.

Worth considering, why not put a "notice of correction" on the credit file with a credit reference agency. This doesnt help much when credit scoring but it does help when loans/mortgages go through underwriting as it prints it off when credit checking. Hope this helps!