Understanding debt
Whether you are a business owner, such as a sole trader, a Company Director or working professional, it is important to know and be aware of your or your company’s financial health.
What are some of the ways I can find out if I am in debt?
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Check your credit file.
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Check for communications from creditors.
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Ask your creditors.
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Check your bank account statements.
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Look up court records online.
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Check with certain (Government) agencies.
No you cannot go to jail for failing to pay a civil debt, like credit cards.
Start low by offering to pay 30 percent or less of what you owe and negotiate your way to an amount that you and the collector can both agree upon. Make your offer attractive. If you’re going to ask that they settle for 70 percent off of what you owe, you should pay it in a lump sum payment.
Credit card debt, unlike mortgage debt, is unsecured debt. This means your credit card company can’t immediately take your stuff — including your home or car — when you don’t pay. Once an unsecured creditor obtains a judgment, they can then attach your non-exempt property in satisfaction of past-due debts.
Debt you have to pay due to a Court ruling.
The “statute of limitations,” which spells out the time period during which creditors or collectors may sue borrowers to collect debts is six years.
Credit file
A credit file is either an online or paper document detailing your borrowing history.
The credit file will detail what you have borrowed and whether you have paid it back or not, how far along are you in paying it and whether there have been any missed or delayed payments. Aside from this, the file will contain your basic details such as name and address.
The sum of this information churns out what is called a credit score. The higher the credit score, the better you are at repaying debt on time, which in turn, increases your chances of securing future loans and mortages.
Anything not relating to you borrowing history won’t be on it such as medical history and criminal record.
Any missed payments on council tax will not be included.
Aside from yourself, only lenders can access your credit file, because they use it to decide whether to lend to you money or not.
Your friends, family or general members of the public cannot see your credit file.
Credit reference agencies collect information on your borrowing history and regulate access.
In the UK, you can use free services like Experian to obtain your credit file.
It’s very important to correct mistakes on your credit file because you could be getting turned down for a loan or mortgage through no fault of your own. The process of rectifying the mistakes is called credit correction.
After six years, most negative items will simply fall off your credit report. Your credit report, if you’re not familiar, is a document that lists your credit and loan accounts with various banks and other financial institutions. The seven-year mark does not erase the actual debt, particularly if it’s unpaid.
You can get any wrong information or any information that should not be on there (i.e. debt info longer than six years) removed via a process known as corporate credit correction.
Credit score
A credit score is a number that is calculated based on the information in your credit file.
You cannot generate a credit score unless you have a sufficient history of credit i.e. borrowing money.
Free websites such as Experian gives you the chance to retrieve and keep track of your credit score.
A score factor is anything that influences your credit score. It allows you to see which factors have the greatest impact on your score.
Your credit score refreshes as often as your credit history changes. Anything like borrowing new money, paying old money off and missing a payment will influence the score.
Generally, the higher your score the better. Credit scoring models can differ. Once you sign up to a website, they will explain what your number means.
It may also be that two websites calculate a different number. This is because the model they use is different.
The better your credit score, the better you have been at paying off any money you have borrowed, be it a loan, mortgage, credit card debts, hire purchase and similar.
The better the score, the more chance there is of future lenders agreeing to lend you money and your bank increasing your overdraft and credit card limit.
What information is used to calculate the credit score?
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Any type of debt.
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Any hire purchase and credit agreements.
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Rent.
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Public records of any history of bankruptcy.
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Request by lenders to view your credit.
What information isn’t used to calculate the credit score?
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Race, ethnicity, religion, gender, sexuality and similar.
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Where you live.
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Marital status.
There is not a single organisation or agency responsible. It could be calculated by the credit reporting agency or mortgage reporting companies. Sometimes lenders may use their own calculations.
Yes, it can. However, if multiple inquiries occur within a specific short period of time, they will be counted as one inquiry.
Some lenders may offer you a credit card without you applying for one because they’ve checked your credit score and see that you would be eligible for one. These do not affect the credit scores. Only the credit checks you initiate affect the score.
Typically, the higher the interest rate on any lending means it is, in theory, more difficult to pay back. This would negatively affect the credit score. However, paying back so-called ‘difficult’ loans on time can have a really good effect on the credit score.
Yes, having too many credit cards with a high balance can negatively affect the credit score. Generally, the more money/credit you appear to be using/borrowing, the lower your credit score will be. This does not mean you have a bad history, all it means is that because you’re already borrowing so much, any further borrowing would not be wise. Once all existing borrowing is paid off successfully and on time, the credit score will increase.
Only if you are a joint account holder with that someone else.
Although not always true, missed or late payments (according to the credit score algorithms) indicates money issues and debt problems. It will concern lenders about your ability to pay back debt and thus would negatively impact the credit score.
County Court Judgements
A County Court Judgment (CCJ) is a type of court order in England, Wales and Northern Ireland that might be registered against you if you fail to repay money you owe.
After six years, the CCJ will be removed automatically from your credit record without you having to do anything. Even if you don’t pay it, the CCJ will be removed and it will be too late for the creditor to enforce it. If your CCJ is already quite old, this may be the best option.
It is possible to get mortgages with a CCJ. High street lenders may take you on, depending on the details of the CCJ. However, you’ll usually pay higher interest rates than with mortgage companies with no credit problems – up to about 5 per cent higher is normal.
Paying the CCJ in full within a month will have county court judgment removed altogether from the register. If it’s paid beyond a month, you can get a certificate of satisfaction, in which case the CCJ is marked as satisfied on the register (but stays on it).
Your credit information is checked by lenders when you apply for credit, and a CCJ can negatively affect your ability to get a loan, credit card or even a bank account. Employers and letting agents may also view your credit information – and see your CCJ – before they hire you or let you rent property.
When you owe money to someone, they can apply to the County Court for a judgment (CCJ) against you to claim the money. The Court will decide whether there really is a debt to pay. If there is, they will issue a CCJ. This will set out how the debt should be repaid.
It won’t affect your credit rating at all. However, if you take longer than a month to repay the amount, a record of this court claim will stay on your file for six years. And even though it will say that you have paid, people searching for your credit history will still see a CCJ against your name.
It is not a criminal offence to have a CCJ and you cannot be sent to prison for not being able to pay. Non-priority creditors use the county court.
You may be able to appeal a county court or High Court decision to the Court of Appeal Civil Division. You normally have to ask the judge’s permission before you can appeal. You’ll need to do this quickly, often within a few weeks.
You can either issue a CCJ yourself or have a legal professional do it for you.
Keep a record of your payments and make sure you pay on time. You can also pay in instalments. If you’re paying in instalments, ask the person or business you owe the money to about the best way to pay.
A document proving a CCJ has been paid.
A certification of satisfaction costs £10.
If you fail to make county court judgements payments, the council can take repayments from any government benefits received.
If you faily to make county court judgement payments, the creditor can apply for sums to be automatically deducted from your wages.