There have been many occasions when someone has applied for a loan, mortgage, or credit card, only to be declined by the lender on the grounds of having a poor credit rating. The most common reason for someone to have a low credit score is down to the fact that they may have arrears or default notices on their existing credit agreements, or have County Court Judgements registered against them.
What are Arrears?
Arrears occur when an individual is not up to date with their monthly repayments on a loan, mortgage or credit card. Sometimes this can come about simply due to one missed payment which can easily be brought up to date, but in other situations this could be far more serious. For example, an individual may be suffering financial hardship, through any number of reasons and find themselves unable to keep up with the required monthly payments on their loan. They may have to resort to only making part of the payment each month, or worse still, no payment at all. In this situation, significant arrears can build up over a very short period of time and if this trend is not corrected, the loan could fall into default.
What is a Default?
A loan, or any other credit agreement, can fall into a default situation when the monthly repayments are more than thirty days overdue and the borrower is either unable, or unwilling to make any payments. If someone is in arrears on their credit agreement and is heading towards a default situation, they may feel that they want to bury their head in the sand and ignore the problem, in the vain hope that it might go away! We all know of course, that this is not the case and it is vitally important that a borrower faced with this situation makes contact with their lender to try to come to a mutually agreeable arrangement as soon as possible.
Most lenders will take sympathetic approach to someone who contacts them with financial problems and will usually try to help the borrower to get out of the situation. This may involve re-scheduling the loan to reduce the monthly payments, reducing the interest rate charged for a period of time, or agreeing to a part payment each month until the borrower gets back on their feet. A lender will usually take the view that receiving some money back from the borrower is better than receiving nothing at all. If, however the situation persists, or indeed worsens, then the lender will have no choice but to place the loan in default. At this point, the lender is likely to take legal action against the borrower, which could lead to them receiving a County Court Judgement.
What is a County Court Judgement?
A County Court Judgement, or CCJ as they are commonly known, occurs when a bad debt is passed to a court by an institution in order to recoup their losses. A CCJ can be brought against an individual by any number of institutions who are owed money by them. This does not only include loan, credit card and mortgage companies. Other common examples of where a CCJ may be registered against an individual are non payment of council tax, or failed payments which are owed to a mail order catalogue.
When a case is brought, the court in question has the power to order the individual to make payment by means of registering a County Court Judgement against them. The court can also order regular payments until the debt is repaid and has the ability to authorise deductions directly from the individuals' salary if they see fit to do so. The County Court Judgement will remain registered with the individual until such time that they repay the outstanding balance fully.
A County Court Judgement will appear on an individuals' credit file, having a negative impact on their credit rating and possibly even stopping them from obtaining any sort of finance in the future. Once the debt to which the CCJ relates has been repaid in full, a certificate of satisfaction should be obtained from the court. This is a court document which will state that the debt is clear and the judgement has been lifted. A copy of the certificate of satisfaction should be forwarded to the relevant credit reference agencies, so that they are able to amend their records accordingly.
