Improving credit score: Defaults / Part-payments

Improving credit score: Defaults / Part-payments

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mx5tom

Original Poster:

573 posts

172 months

Wednesday 19th September 2018
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Looking at applying for a mortgage in the next 6 months or so, joint application with my girlfriend. My credit shouldn't be an issue, but hers could/will be.

The situation is that a few years ago when she was in uni, she and her housemates set up bills for the shared house. The broadband bill was in her name, but for some reason the direct debit was setup to go out of her housemates' account. She paid her share of it to them each month and assumed it was all paid.

Fast forward to a few months ago: She started receiving debt collection letters for the outstanding broadband bill. It looks like her housemate never actually paid a penny, and as it was setup in her name, she's obviously liable for it. The broadband company agreed to accept a lower amount than the full bill, and they agreed it could be paid over three instalments.

She's now paid all of the instalments, but checking her credit report it still shows that part of the bill is still outstanding. The payments she's made over the past few months show up, but it still says she owes more (specifically, the difference between the original bill and the lower amount accepted by the broadband company).

So, where to go from here?

  • Is the fact that the account shows as being in default a mistake on the credit report (as she's now paid the agreed amount)? If so, who should be contacted to rectify it (broadband company, or credit reference agencies?)
  • Does the fact she paid a lower amount than was owed negatively impact anything? If so, will paying the difference now to settle the original, full amount improve anything?
  • As she only recently became aware of this, she's been clocking up defaulted payments every month for the past few years, just how bad is this?
  • How badly is this likely to affect a mortgage application? The full amount owed was only a few hundred quid, so hardly loads, but as she has no other real credit history it looks quite bad!
In a nutshell, how do we improve the situation and is it as big a deal as it seems?

Sarnie

8,025 posts

208 months

Wednesday 19th September 2018
quotequote all
mx5tom said:
Looking at applying for a mortgage in the next 6 months or so, joint application with my girlfriend. My credit shouldn't be an issue, but hers could/will be.

The situation is that a few years ago when she was in uni, she and her housemates set up bills for the shared house. The broadband bill was in her name, but for some reason the direct debit was setup to go out of her housemates' account. She paid her share of it to them each month and assumed it was all paid.

Fast forward to a few months ago: She started receiving debt collection letters for the outstanding broadband bill. It looks like her housemate never actually paid a penny, and as it was setup in her name, she's obviously liable for it. The broadband company agreed to accept a lower amount than the full bill, and they agreed it could be paid over three instalments.

She's now paid all of the instalments, but checking her credit report it still shows that part of the bill is still outstanding. The payments she's made over the past few months show up, but it still says she owes more (specifically, the difference between the original bill and the lower amount accepted by the broadband company).

So, where to go from here?

  • Is the fact that the account shows as being in default a mistake on the credit report (as she's now paid the agreed amount)? If so, who should be contacted to rectify it (broadband company, or credit reference agencies?)
  • Does the fact she paid a lower amount than was owed negatively impact anything? If so, will paying the difference now to settle the original, full amount improve anything?
  • As she only recently became aware of this, she's been clocking up defaulted payments every month for the past few years, just how bad is this?
  • How badly is this likely to affect a mortgage application? The full amount owed was only a few hundred quid, so hardly loads, but as she has no other real credit history it looks quite bad!
In a nutshell, how do we improve the situation and is it as big a deal as it seems?
It's called a partial settlement, the credit file is reflecting that an agreement was made to settle the default but at a lower amount.

The account showing as a default is not a mistake, the account is/was in default. This will remain for six years after the date the default was registered.

The partial settlement does reflect negatively (An amount was owed and you've bartered a lower amount, doesn't look good to other firms you are asking to lend you money). Paying the difference would help but will still not over ride the fact that there is a default on the credit file.

The key to defaults and mortgages is the date the default was registered. In the last six months and you have no chance, more than two years ago and there will be lenders who will lend..........the further into your history it becomes, the less of an issue it will be.

I help clients secure mortgages with defaults every single week.

It sounds like your girlfriend really needs to build her credit history up.......get a contract mobile phone, open a bank account up, get an overdraft, ensure she is on the electoral roll, get a credit card to use for minimal spends.......you need to build a history/picture of being able to take on and maintain credit satisfactorily........at the moment, from what you've said, all she has really is one account thats defaulted, debt avoided and then bartered for a lower settlement.........I appreciate the background to the issue but lenders can't take any of that into account, credit decisions are based on the facts and figures relayed to them from credit bureau's!

Good luck!

TartanPaint

2,981 posts

138 months

Wednesday 19th September 2018
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A wee tip on building up credit, I discovered that having a credit card and not using it doesn't build up your score. As Sarnie said, you need to use it. But, if you use it once and then overpay the bill by £1, it counts as having a balance on the card. You never have to pay the bill again, because they owe you £1, but it will count as an active card and help build up your score. I discovered this quite by accident about 10 years ago. It might still work!


Craikeybaby

10,369 posts

224 months

Tuesday 25th September 2018
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On a similar note, last month I logged in to my credit card account on payday to pay it off. It said balance due was £0, so happy days.

Fast forward a few weeks I get an email saying I have missed a payment and must pay immediately. Obviously I paid it off in full, including the missed payment fee etc. Is this going to come back to haunt me?