How debt solutions affect your credit score and the effects

credit score

Anyone who has gone through the process of managing their debts through a Debt Management Plan (DMP), IVA, DRO or Bankruptcy will know that it can take years for your financial circumstances and credit score to get back to normal. In Scotland this could apply to DAS, PTDs and Sequestration (Bankruptcy). We take a look at what you could expect in the immediate future until you manage to get things back in order – but for advice on long term financial solutions and planning we’d always recommend that you speak to a financial advisor.

Details on public view

For anyone on an IVA, in a DRO or having been through Bankruptcy the details of these will be available on a public register.

If you’re subject to PTD, DAS or Sequestration your details will be available on separate public registers in Scotland.

Credit reference agencies, employers or prospective landlords can search to see if you’ve been involved in any insolvency activity. For any insolvency products this is something you should be advised about before you decide to go through with it. A DMP won’t directly show up on your credit report nor is there any public record of this. But if you’re on a DMP any payments made through this can be flagged by a creditor to show it is being managed through a DMP.

How long do debt solutions affect your credit score for?

When you have gone through any form of debt management or insolvency process your credit rating will be adversely affected for at least six years. For a DMP this will stay on your file while payments are being made and for six years after your last payment. In the case of Bankruptcy or Sequestration it will be from the date you are discharged, which could be up to a year or later after being declared Bankrupt. For an IVA and DRO it is six years from when it starts, or longer if the arrangement lasts more than 6 years.

Potential restrictions on renting

As landlords and estate agents may run a credit check before letting a property it is worth being upfront about it.

Shelter offer the following advice

“Be honest with a letting agent about a bad credit rating before you pay any fees. If you fail a credit check you risk losing fees you have paid.”

source: Shelter 09/10/2014

If you can prove that you are in stable employment with a regular income it may help your cause. Though you may be required to put down a larger deposit if your credit record has a blemish.

Restrictions on credit

There will be a number of lenders who choose not to deal with people who have details of insolvency on their credit record. There are specialist lenders who will offer financial products to people with sub-prime or bad credit records. However the rates you’re likely to be offered may not be near or as competitive with the market average. With Bankruptcy you need to tell lenders you’ve been made bankrupt if you’re borrowing over £500 while you’re still declared as a bankrupt.

Access to banking facilities with bad credit

If you’re looking at banking facilities you may only be eligible for basic accounts with no overdraft and little in-credit interest. Your account may also be subject to charges for any direct debits which are unsuccessful due to lack of funds in your account.

Potential restrictions on jobs

There are some jobs which place restrictions on anyone who has been subject to insolvency. These usually include roles within financial institutions or insurance.

With bankruptcy you can’t do any of the following jobs:

  • Company director
  • Charity trustee
  • Insolvency Practitioner
  • Justice of the Peace

There are also restrictions on acting as a company director if you’ve been made bankrupt.