How is my credit file affected…with a early settlement
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Today we bring you a guest blog from one of our case officers who works within the Complementary Support Rebecca Sowter-Croll.
A common question I come across daily in my job, is how my credit file is affected when going through the settlements department. When clients come through to our department they often have a lump sum available for example inheritance, equity release or a work bonus. Many clients mention they have read up on forums or have been told by friends that they got low settlements such as 30%. Unfortunately this all depends on multiple factors such as; age, employment, illness, if you are a home owner or rented. All creditors have their own guidelines and policies to follow as to how much discount they can give.
So there is NO guarantee as to what a creditor will accept.
Our Clients have the following options, as to how they wish to use their funds to clear the debts they owe.
- Full settlement
A full settlement is what it says on the tin, we will contact all the creditors to get the up to date balances and to find out if there is any interest or charges being applied – they then pay the full outstanding amount. If the client opts for this it will show on their credit file for 6 years as fully satisfied.
- Short Settlement
On the other hand a short settlement is slightly different, firstly we gather all the balances in and find out if any interest or charges are still being applied. Once we have this information we would work out a pro rata offer that would be equal and fair to all creditors. I must mention that not all creditors will accept the pro rata offer, and they could possibly want more, or in some cases the full balance back.
We would them put this offer to the creditors. Usually they will want this in writing along with any documents to support the short settlement and an up to date financial statement. These letters are then passed on to managers to be looked at, if the offer was accepted they will usually have a expiry date, this is on average 21 days .If the funds are not with the creditor in time the settlement may not be accepted.
If a creditor agrees to accept a short settlement on receipt of the funds they will then write off the reminder of the balance, and you will not be chased for this. In return this will then show on your credit file for 6 years as partially satisfied. We have recently been advised by companies such as Experian that doing a short settlement is not as harmful to your credit file as it once was. If you were to take out further credit or apply for a mortgage you may find the creditor won’t lend you as much or the interest rates might be slightly higher.
If you already have a default or CCJ on your credit file, these will still stay on your file from the date of issue, until the 6 years are up.