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How long does bad debt stay on your credit rating?

Your credit report is vitally important if you are looking to borrow money. If you apply for a new credit card, mortgage or loan then it is likely that a lender will assess your credit report as part of their underwriting process.

Your credit rating will change on a regular basis. Every time you make a payment to a debt such as a credit card or loan your credit file will be updated. And, it is also affected by factors such as whether you are on the electoral roll. Money Saving Expert reports that around 350 million records are tracked in the UK every month.

So, keeping a good credit rating is important, although if you have missed payments in the past or struggled with debts, your credit rating may have been damaged. However, it is important to remember that even if you have experienced debt problems in the past, these bad debts won’t stay on your credit file forever. Our guide explains more.

What is your credit rating?

Your credit rating is based on a number of factors. One of the most important is the information that credit reference agencies hold about you. The three UK credit reference agencies - Experian, Equifax and Callcredit - compile information about your credit history.

This information comes from four main sources:

  • Court records - The information shows if you have any County Court Judgments (CCJs) or bankruptcies

  • Search data - This includes records of other lenders who have searched your file when you've applied for credit. It also includes any addresses to which you are linked or other people you have a financial association with

  • Fraud data - If you have committed a fraud (or someone has stolen your identity and committed fraud) this will be held on your file under the CIFAS section

  • Electoral roll information - This contains your address and details of who lives with whom

Your credit file includes records of payments you have made to your debts. It shows whether payments have been made on time, whether you have defaulted on any loans or credit cards and whether you are in arrears. It is this information that many lenders are interested in as it helps them to predict whether you are likely to responsibly manage any credit they give you.

If you have any negative information on your credit file it can affect your ability to get credit. It also means you may pay higher interest rates on any borrowing. However, bad debts don’t stay on your credit file forever, as we see next.

Bad debts don’t stay on your credit rating forever

If you have bad debts, you should remember that they will only remain on your credit file for a certain period of time.

For example, County Court Judgments for non-payment of debts, Individual Voluntary Arrangements (IVAs) and bankruptcies stay on your credit report for at least six years. Defaults will typically also remain on your file for six years.

Missed payments on debts are less serious, but even they are generally recorded for at least three years.

If you have bad debts, it is important that you regularly review your credit report when you have paid off a debt. Your default should have been updated to ‘satisfied’ and this will help you to improve your credit rating. In addition, if you want to explain on your report why the default occurred you can send a ‘notice of correction’ to each of the three credit reference agencies - Experian, Equifax and Callcredit.

If you do have bad debts, it may take some time for them to disappear from your credit file – but it will happen eventually. The key is to clear your debts, keep making regular payments and ensure they are recorded as ‘satisfied’ as soon as you can.

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