How Trust Deeds affect Credit Ratings
Trust Deeds help thousands of people each year get out of debt but there are pros and cons to every debt solution. The downside of a Trust Deed is the fact it negatively impacts your credit score. Although this sounds off-putting, it is important to consider all relevant factors before making a decision. There is a strong chance your credit may already have been affected if you have found yourself in the financial position where a Trust Deed would greatly improve your circumstances.
Have you ever missed a payment to one of your creditors?
If so, that missed payment will show on your credit file for six years, the same as a Scottish Trust Deed.
It is in your best interest to get out of debt sooner, rather than later. Entering a Trust Deed would affect your credit for the next six years but then your debts would be written off and you would able to rebuild your credit history from scratch. If you stay in debt and continue to default, without entering a debt solution such as a Trust Deed, your credit will got get the chance to improve until six years after your last default. This could prove to be a much longer time than if you’d entered into a Trust Deed.
If you’ve found yourself missing payments to your creditors or are reaching the stage where you can’t meet your payments, a Trust Deed may be the solution for you. Try the Trust Deed Wizard to find out how much you could expect to pay each month.
What exactly is a credit rating?
Your credit rating is determined using a mathematical equation that considers your credit history and determines how much of a risk you pose to lenders.
Generally, the higher your credit score, the more likely you are to be considered for credit.
What factors are likely to have a negative impact on your credit score?
- Any late payments or defaults.
- If you aren’t registered on the electoral role at your address.
- If you haven’t had much credit in the past, (your score is determined by past behaviour and it’s hard to decide whether or not you are reliable if you’ve not past credit to judge by).
- If you always pay off credit cards in full each month, (credit card companies make money by you being in debt. If you make the minimum payment each month and never default but do not clear your card, you are running up interest and are a better investment than someone who clears their card every month and doesn’t make the company much money).
- If you’ve applied for lots of credit in a short period of time.
- If you have a large amount of debt outstanding and/or are near your credit limits.
- If a lot of credit checks have been performed on you in a short period of time.
- If you have ever been Sequestrated or have any decrees, IVAs or any other court debt orders against you.
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Could I get credit during a Trust Deed?
During the term of a Protected Trust Deed, (typically 4 years), you would not be able to apply for any further credit. The reason for this is, the Trust Deed has been granted to allow you to get out of debt and it allows you to write off a percentage of your debts. If you had enough disposable income to take out further credit, your Trust Deed contribution would have been higher, allowing you to pay more of your debts back.
What would happen to my credit rating after my Trust Deed term finished?
Once you completed the agreed terms of the Trust Deed, any remaining debt would be wiped off, leaving you with a clean financial slate to start again. The Trust Deed, same as any formal debt solution or default/late payment will show on your record for typically 2 years after your Trust Deed term, during which you might find it difficult to obtain credit. Once that time has passed, your credit record will show your debts as satisfied and you will be able to begin applying for credit much as you would have done when you first began getting credit at 18.
Find out how a Trust Deed could help you clear council tax arrears.
How do you rebuild your credit score?
- Don’t make too many applications at once. Spread them out and try a credit card with as low interest as possible.
- Use the card monthly to make small purchases and clear them in full, to avoid your finances getting out of control again.
- Double-check you are on the electoral role.
- View your credit report to make sure it is accurate. If there are any inaccuracies, you can ask for these to be rectified, (speak to the company who put the entry on your credit file and if they will not remove it, go to the Information Commissioner’s Office and ask them to investigate on your behalf).
- Be careful not to take out any joint finances with someone else with poor credit, (such as joint mortgages and loans), as this may affect your credit further.
- If there’s anything relevant you’d like to say about something on your credit history, (for example, perhaps you missed a payment due to redundancy or hospitalisation), you can ask to add a notice of correction which anyone checking your credit history would see. This does not guarantee the person checking would take this into account but depending on the situation, this could make a difference as the credit history only shows dates and figures, not reasons for missed payments.
Read our blog to find out the common myths about poor credit and what the facts really are.
When trying to rebuild your credit: take it slowly, be responsible and be patient as it won’t happen overnight. The benefits to being in a Trust Deed should far outweigh the negatives, (or you would not have been offered a Trust Deed in the first instance). One of the largest positives is having any remaining debt cleared, once you have complied with the Trust Deed Terms.
For more information, please see our Scottish Debt Solutions FAQs or Contact Trust Deed Scotland.
*Figures have been taken from a real case but name has been changed to protect client’s identity.