CCJ’s & Remortgaging With A Bad Credit History
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Just in 2016, 2,300 CCJs were issued, with the average value being £2,171.
Once issued with a CCJ (Decree in Scotland), you have all but 30 days to get the balance paid in full. If you can’t do that within thirty days of the court ordering the CCJ or Decree, it’s a six-year stamp on your credit file, telling every potential lender that you have a history of non-payment.
If you’re still within that 30-day saving grace window, refer to Experian here to find out how to get it removed.
If that window of save-my-credit has passed…
Don’t Do Nothing
Consider the option of ignorance off the table. By the time a CCJ comes around, there will have been plenty of opportunity to pay given. Court action is the final curtain call for a business to get paid what they’re owed.
Up until the Courts got involved, there may or may not have been an attempt to make repayment arrangements. With a CCJ in tow, the courts are involved, so the option to ignore the issue is gone. It’s time for a check-in with reality.
The first step to getting real with money problems is Citizens Advice, if they have a drop-in centre near you, drop-in, make an appointment if you need but definitely approach them for advice. In the meantime, you may want to read the advice they offer about getting a court order changed.
If you have difficulty proving your income we would like to hear from you:
Even if your financial circumstances at the moment allow you to make timely repayments towards the outstanding debt, circumstances change. In many cases, it’s a change in circumstances like losing employment, a family bereavement, or other circumstances outside of your control that cause previously managed debts to become unmanageable.
When you have a CCJ (issued in England and Wales anyway as other areas handle the process differently), it’s vitally important to stick to the terms of the order, because it limits the further action a creditor can take. For existing mortgage holders, the further action taken can mean that an unsecured debt becomes a secured debt against your home. This can be done by going back to the courts to secure a Charging Order. If a charging order is issued, when you sell or remortgage your home, whatever you owe is paid from the proceeds.
The Citizens Advice service is free for all, regardless your financial circumstances. As they provide a money advice service, they are regulated by the FCA (Financial Conduct Authority) so you are going to get solid advice and no ifs, buts, or maybes. It’s advice based on facts and an understanding of the legal issues involving debts.
Going forward from there…
Investigate lenders before applying
Whenever you apply for credit, the company will do a credit check on you. Those show on your credit report and do more damage with every hit.
What most people don’t know is that in high street banks, and some mortgage providers with a high amount of applications; the advisors are working to targets to run credit checks against the applicants.
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The reason has nothing to do with selling you a mortgage product. It’s about fitting the customer profile to the lenders risk level criteria. It’s for this reason that you can find it difficult to even get a sit-down with an advisor. The fast check of your credit report shows you’re a risk they’re not comfortable with, leaving you back at square one.
Online Mortgage Advisor’s Peter Mugleston laid out a good four-step strategy for approaching mortgage providers.
It goes like this
- Step 1: Know your credit reports – them all – Experian, Equifax and Call Credit (see the Money Advice Service for how to do this)
- Step 2: Don’t make multiple applications for credit
- Step 3: Use a broker
- Step 4: Involves repairing your credit
It’s a solid process; however, we’d add that in addition to refraining from putting multiple applications out there, you need to know the best lenders who would, in all likelihood, be comfortable with the level of risk you pose. Like, what the high-street banks say is a risk and it’s because you’re self-employed?
Good to Know
- FCA statistics show that there are about 300 regulated mortgage lenders and administrators in the UK.
- The self-employed can use Form SA302 to get evidence of their earnings.
- Of the 300 regulated mortgage lenders, the Government list only 55 mortgage providers and lenders who accept form SA302.
Here’s the link to the list of lenders who do accept it. Needless to say, it’ll be easier to prove your earnings when you can use your tax returns. And knowing the 55 lenders who accept form SA302, lets you know they accept applications from people who are self-employed.
Step 3 is something people shy away from because it’s that notorious middle man that everyone’s taught to avoid. Cut out the middleman and you’ll save a fortune.
When it comes to the financial market, those in the middle of the deals have the knowledge of all the lenders and the whole of market products as well as the risk level profile of each lender. Without a broker in the middle, the best deal wouldn’t likely be on the table. It can sometimes be a higher upfront cost, but the result should save you more in the long-term.
The last part:
Repairing your credit – this can be done in a myriad of ways, but it’s always going to take commitment and be sustainable for the long-term. For those who are within the 30-day window of repaying a CCJ to stop it being reported on your credit file, consider smaller finance firms catering to adverse credit, provided it makes financial sense to do so.
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Say for example, a creditor has had a CCJ awarded against you for a total of £1,500. If that’s not paid within 30 days, it’ll affect you for 6 years. It’s a more serious entry on a credit file than having account reported in default. Repaying in full within 30 days is more about damage control. The unsettled debt will already be there. If it’s left unattended and becomes a CCJ entry, it’s more severe.
A smaller loan could allow you to pay the balance off in full preventing a CCJ from being reported. Be wary of the interest charges though and stay away from fast loan firms aka, payday loans, which are extremely damaging to your credit reports. Also, be careful of all high interest bearing loans as they have the potential to cripple your bank balance.
For CCJs that cannot be removed, you can lessen its impact
Once a CCJ is issued and not settled within 30 days, it gets its own special entry on your credit report. It can’t be removed for six years, however…
This advice from Trust Online explains the status can be changed. Your account status is reported as either satisfied or unsatisfied.
- Satisfied status shows you’ve settled the balance
- Unsatisfied status shows the balance remains unpaid
Having any negative entry on your credit report show as satisfied is a positive change, recognised by all lenders. Even the high-street banks, which are notoriously difficult to get approved with, view default accounts that show as satisfied as a lower risk.
Since being self-employed already labels you as a higher risk with lenders, to get the best remortgaging deal or any type of home loan, anything you do to improve your credit reports will have a positive impact on your ability to access finance.
In terms of the money it can save, the Guardian reported about the bounce back of subprime lenders such as Pepper Home Loans and Bluestone. The lowest rate at that time was with Yorkshire Building Society at just 1.14%. Rates with subprime lenders were nearly eight times higher. Foundation Home Loans were even higher; although they’re focus market is buy-to-let mortgages with bad credit. Needless to say, landlords affected with adverse credit are going to have a challenging time accessing decent finance.
The difference between the rates you can get approved is based on the risk level. That’s assessed using your credit file, so improve that, and you’ll be able access lower interest finance.
Improving your credit score is the only way to go!
If you’re hammered with a CCJ filing, the only way you may, with emphasis on “may” be able to get the entry withdrawn is by having the court set it aside. Mason Bullock’s Andrew Crisp points out that to remove a CCJ; you will need a good reason for the judge to set it aside.
- If you weren’t in attendance for the hearing when the CCJ was awarded, the judge will want to know why. You moved address and weren’t aware of the hearing, family bereavement, sudden illness etc.
- After becoming aware the CCJ was issued, you took immediate action to ask the court to set it aside. In other words, if your CCJ was issued a year ago, and you’re only now learning about this, it’s likely a waste of time trying to get it removed.
For the self-employed, credit reports are a necessity to look after. The situation just now may look grim, but there are lenders who will accept higher risk levels. Get your credit reports and start working through any negative entries. Contact the companies reporting and discuss payment options. Preferably before the courts get involved because once a CCJ is issued, your choice of lenders is narrowed.
For those with debts that are because of start-up costs, perhaps funding equipment on a credit card issued when you had secure employment, it may be worth discussing the business aspect of the debt with someone qualified to give advice, so either your accountant, or a financial advisor, the reason being that debts can be in your name or your business name, depending on how you structure your business; sole trader or Limited Company. That’s something else entirely though and it’s not our territory. Get advice from a business advisor, solicitor, accountant or financial advisor.
Spend within your limits, create a budget plan, and set your boundaries too. A number of credit cards are available that are reportedly designed to help people with poor credit. They won’t if you go overboard, so if that sounds like something you might do, the only plastic you’d be best sticking to is your Debit card. That way, if the cash isn’t in your bank, you can’t spend it.
If your personal finances are worrying you, there’s a free course called Manage My Money available through OpenLearn part of The Open University.
There’s no point in worrying about a CCJ already issued that’s past the 30-day repayment window. That’s there for six years. All you can do is work on repaying and then have the company update your credit reports to reflect that the account is satisfied.
If it’s still being paid, keep on making the payments on time. Failing to repay in accordance with the terms of the CCJ issued, gives creditors the chance to file for further action to be taken. That’s when they’ll seek a Charging Order and that’s going to affect your home equity.
While you have equity, remortgaging is actually easier so if you’ve addressed the CCJ issue, it could be worse. You could have the debts dipping into your equity, bringing a host of issues to lenders and most turning you away. Improving your credit report will make it easier to access finance but it’s going to take time.
If it’s within the 30-days, it’s worth considering finance if you can, just to prevent it reaching the reporting stage when it will be stuck on your credit file for six-years. If that’s already happened, you don’t have to wait the six-years for it to automatically drop-off.
Maintaining all your finance accounts will keep the most recent reports positive. When lenders are using your credit files to assess your level of risk, more weight goes to recent entries so keep all your accounts reporting as in good standing and not in default will help you obtain finance, even with a CCJ.
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