Defaults and credit files

[louiseh]

I had a letter from MBNA stating pay up or else we issue a default notice, they also said that until the debt is cleared, account completed default notices would be recorded and would remain on my credit file 6 years from the last one. Does this therefore mean that if my debt is settled through a 5 year IVA, then my account with them is not up to date until end of year 5 and am therefore defaulting on my payments for 5 years, so I have these defaults on my credit file for a further 6 years (11years total) which is what they are implying.

Thank you

[gimmewine]

No, your IVA will stay on your file for 6 years from the date it was agreed ie only one more year after completion. Default notices will also stay on our file for 6 years from the date they were logged.

[kezza]

When you enter an IVA it is a legally binding contract between all parties. Until the point of starting an IVA they will hound you to attempt to get anything they can. I had a few of those letters.

On completion of a five year IVA all debt is written off on receipt of your certificate of completion. Your credit file is then wiped clean after year 6

[Storm]

This is a common question and one that both the previous posts have partially answered.

OK - your IVA flag remains on the credit file for a total of 6 years. When you complete the IVA process and are issued your Cert of Completion this date is recorded on your credit file and appears as completed.

Example -

IVA start 01/2005 (Shows as start on CR)
IVA finish 01/2010 (Shows as Completed on CR)
IVA Cleared from CR - 01/2011

Defaults and payment data are a completely different matter.

Data re above stays on the CR for a period of 6 years from the date it is reported to the Credit Reference Agencies.

Lenders have different policies of whether they report IVA clients as Defaults for the duration of the IVA or to stop reporting.

Certainly 3 lenders I know of are now reporting defaults for the duration of the IVA which means the default data remains on the credit file for upto 11 years in total.

[louiseh]

Thanks for the information, wasn't sure if MBNA were just using it as a scare tactic, obviously not. so effectively the IVA can affect your credit status for 11 years and not the 6 years as suggested. If you went bankrupt however and the OR took away the responsibility for your debts, then I asume your credit file would be clean after 6 years. I obviously wouldn't want to go down the credit route again, I was just thinking of future mortgages and paying standard rates.

[Storm]

Mortgages are not underwritten in the same way as other credit such as credit cards, motor loans and un-secured loans.

You can get a competive rate once you are in an IVA for 24 months. It wont be the best rate in the market but nor will it probably be as bad as you think. For example at the moment the difference between the Halifax and a non standard lender that will happily take IVA clients is aprox .25%.

The older the data gets the less relavant it is to lenders.

Credit scoring systems (scorecards) start to de-value data after 2 years settled.

It has been a hot debate in the credit industry for some months:

View 1 - 6 years is long enough if somebody has completed there IVA why not give them a fresh start.

View 2 - Lenders should be informed of previous credit problems even after 6 years then make a choice of whether to take a risk or not.

Unfortunately there isn't enough data yet to say whether IVA clients become habitual and continue to incure high levels of debt and IVA again.

Sorry if thats a little long winded.

In my view - don't worry too much about the credit report...... choose the best solution for you based on your circumstances.