Navigating the intricate world of credit scores and statute-barred debts in the UK can be a complex yet crucial aspect of financial management. Understanding the nuances of how your credit score is calculated and impacted by various factors, including statute-barred debts, is essential for maintaining financial health.
This article delves into the key components of credit scores, the criteria set by leading credit agencies, and the intricacies of maintaining a good credit score. We also explore the concept of statute-barred debt under the UK’s Limitations Act 1980, its implications on your credit report, and the unique challenges it presents.
Whether you’re dealing with existing debts, aiming to improve your credit score, or simply seeking to understand the financial landscape better, this guide offers valuable insights and practical advice. So, let’s dive into the details.
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What is a Credit Score?
Your credit score is like a financial report card, showing how well you handle money. It’s made from your credit report, which lists all your debts and how timely you are in paying them.
When you pay off your debts on time and regularly, your credit score will be better. However, constantly missing payments and not paying on time will result in it being recorded in your credit history. Due to this, it will negatively impact your credit score.
Having a good credit score is beneficial for many reasons. Most of the time, lenders check your credit score before they decide on whether they want to lend you money. So, with a good score, you will find it much easier to get approved for car loans, mortgages, personal loans, etc.
Similarly, having a bad credit score will make it difficult for you to borrow money and get approved for loans.
What is a Good Credit Score?
Deciding whether a credit score is good or bad solely depends on the service you use to acquire your credit score. In the UK, there are three main credit reference agencies. This includes Equifax, Experian, and TransUnion.
Each of these agencies gathers and maintains credit information about businesses and people. Lenders then use the information provided by them in order to identify if an individual is creditworthy. Each agency has its own scoring system that consists of unique characteristics which can impact credit scores.
Below is what is considered a good credit score according to each agency:
- Experian’s Take: Score 880 out of 999, and you’re in the good zone.
- Equifax’s Standard: Here, a score above 420 out of 700 is what you’re aiming for.
- Transunion’s Benchmark: Getting 604 or more out of 710 is considered a good score.
How do I Maintain a Good Credit Score?
There is no doubt that struggling to pay off your debts and missing deadlines significantly impacts your credit score. However, if your credit score is bad, it’s important that you work on improving it.
Note that taking up debt solutions such as a Debt Relief Order (DRO) or an Individual Voluntary Arrangement (IVA) will have a negative impact on your credit score as well. But it’s not all bad news.
Upon taking up a debt solution, there is hope for improving your credit score. You can easily do this by making timely payments. Your credit score will start to improve fast once you continue to do this. So, by the time you complete the debt solution period, not only will you be debt-free, but you will also notice that your credit score has improved.
However, it’s crucial that you choose a debt solution with proper guidance. If this is a decision you want to move forward with, feel free to reach out to our MoneyAdvisor team for guidance.
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What is Statute-Barred Debt?
A statute barred debt is a type of debt that is unenforceable. So, in this case, a creditor cannot go to court against you in order to recover the amount you owe. According to the Limitations Act 1980, in order for a debt to become statute-barred, a limitation period should be fulfilled.
Usually, this limitation period is six years for most unsecured debts, but for some debts, such as mortgage shortfalls, it is twelve years. So, you may ask, ‘How do I know if my debt is statute barred’ According to this Act, if a debt meets the following criteria, it is statute barred:
- You have not made any payments in the last six years
- You have not admitted to owing the debt in writing in the last six years
- You have not received a County Court Judgement (CCJ) for it
Note that if you admit to owing the debt or making any payments within the six-year period, it will reset the period, and the debt will become enforceable. So you will have to wait for another six (or twelve) years starting from that date in order for your debt to become statute barred.
Take a look at this forum post where a user claims to have faced a similar situation:
Furthermore, once you receive a County Court Judgement (CCJ), your debt will be enforceable no matter how many years go by. The limitation period will not apply in this case, and the debt will not become statute barred.
Furthermore, if you don’t make your payments to your CCJ on time, this will also have some severe consequences. So, if you have a County Court Judgement against you, it’s important that you make payments without delay.
Once your debt becomes statute barred, creditors cannot go to court against you. However, if they are not regulated by the Financial Conduct Authority (FCA), they can still reach out to you.
But in a situation where the FCA regulates them and your debt is statute barred, you can send them a letter requesting them to stop. If they refuse to seize contact, you can file a complaint to the Financial Conduct Authority (FCA).
Note that if your creditor is not regulated by the FCA, you cannot get them to stop reaching out to you regarding your debt that is statute barred. Even though they cannot go to court against you for it, they have the right to reach out to you outside of court. In a situation like this, the best option would be to pay off the amount you owe so that they would stop contacting you.
Keep in mind that you should treat particular debts, such as Tax Credit overpayments and Council Tax Debts, as priority debts. This is because, for these types of debts, creditors like HM Revenue and Customs don’t have to go to court to directly deduct the money from your wages in order to recover the debt.
Furthermore, particular debts cannot become statute barred. This indicates that there is no time limit to recover them. Some of these debts include:
- Tax debts: these are debts that you owe to HM Revenue and Customs (HMRC) for income tax, VAT or other tax liabilities where the statute of limitation is not applied. HMRC has the right to chase you for tax debts even after the normal limitation period has expired.
- Student Loans: Student loans that are issued by the SLC (Student Loans Company) are not subject to the statute of limitations. So, even if the normal limitation period passes, they can collect the debt.
How does Statute-Barred Affect My Credit Score?
When you miss any deadlines for debts and default on your account, it will appear on your credit report. This will stain your report for a period of six years. During this time period, it will gradually affect your credit score.
So this indicates that even though the words ‘statute-barred’ will not appear on your credit report, missed payments, late payments, payment breaks, and defaults will appear on it. After the day they’re registered, they will stay on your credit report for six years.
For example, once you receive a Default Notice, the limitation period on your debt will start. So, if you haven’t made any payments or admitted to owing the debt in the last six years after receiving this notice, it will become statute-barred. Also, the mention of the default notice will no longer appear on your credit report.
How Can I Get Out of Debt?
If your debt is not statute barred and you’re unable to pay, note that there are various debt solutions you can consider. We recommend you explore alternative debt solutions that can address your debt-related concerns effectively.
However, it’s crucial to keep in mind that each of these debt solutions has specific eligibility criteria. Selecting the right one can lead to debt resolution while choosing the wrong one could worsen your financial circumstances.
Hence, seeking guidance from a professional debt advisor is a prudent step to take if you find it challenging to determine the most suitable debt solution on your own.
- Additionally, you may be eligible for Minimal Asset Process bankruptcy (MAP). For that to work, you need to prove that you have only a limited income and few valuable assets.
- This MAP option is known for its speed, cost-effectiveness, and simplified process, making it a practical choice to explore.
If you need personalised assistance based on your current financial situation, please feel free to complete our online form by clicking here to receive help from our Money Advisor Team.
Conclusion
So, navigating statute barred debt can be daunting. But armed with the right knowledge, you can make informed decisions. Remember, statute barred debt UK laws, the peculiarities of statute barred debt Scotland, and the nuances of a statute barred debt sold on all play a part in your financial journey.
So, what’s your next step? Understanding your credit score, maintaining good financial habits, and knowing the ins and outs of statute barred debts are keys to unlocking a healthier financial future.
Key Points
- A credit score is a numerical representation of your financial reliability, influenced by how punctually you pay your debts.
- Good credit scores vary among UK’s credit agencies: Experian (880/999), Equifax (420/700), TransUnion (604/710).
- High credit scores increase the likelihood of loan approval and favourable terms. At the same time, low scores can lead to high interest rates and loan rejections.
- Maintaining a good credit score involves timely debt payments and avoiding debt solutions that initially harm your score.
- Statute-barred debt in the UK refers to debt that becomes unenforceable after a certain period. This is typically six years for unsecured debts and twelve years for some others.
- The Limitations Act 1980 resets the limitation period if a debt is acknowledged or a payment is made.
- County Court Judgments (CCJs) prevent debts from becoming statute-barred, and missing CCJ payments has severe consequences.
- Once a debt is statute-barred, creditors can’t take court action but may still contact you. However, FCA-regulated creditors must cease contact if requested.
- Some debts, like Council Tax and Tax Credit Overpayments, never become statute-barred.
- Missed payments and defaults affect credit scores negatively for six years, regardless of whether the debt becomes statute-barred.
- The mention of Default Notices disappears from the credit report six years after issuance. This is the case only if no payment or acknowledgement is made.
FAQs
Your debts become unenforceable after six years if it sorts under statute barred debts. This indicates that creditors cannot go to court against you or chase for the debt.
If you never pay debt, the creditor will attempt to collect the money themselves or pass on the debt to a debt collection agency. Not paying debt will also severely impact your credit score.
