How Does a Trust Deed Affect My Credit File? - Carrington Dean stars-five-icons

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01.11.2018

How Does a Trust Deed Affect My Credit File?

Trust Deeds are a useful debt solution to help clear unsecured debt. It is only available to residents of Scotland and typically lasts 4 years, although longer can be considered depending on your circumstances. At the end of this time, any unsecured debts remaining will be written off. You may be asked to release equity from your assets, however, you will not be required to sell your home or assets.

However, like with all formal debt solutions, a Trust Deed will have a negative impact on your credit rating. This can be a cause for concern for many people, however, it’s important to remember that your credit rating may already be negatively affected if you have fallen into arrears or missed payments.

A missed payment will show on your credit file for 6 years, the same length of time as a Trust Deed. Entering into a Trust Deed allows you to write your unsecured debt off and after the 6 years have passed you will have a ‘clean slate’ on your credit file and start afresh and rebuild your credit score.

What is a credit file?

Your credit file is collected by a credit reference agency such as Experian or Equifax and helps lenders determine how much risk you pose as a creditor based on your credit history – it shows them if you have ever defaulted on payments, if you have debts and if you have ever been declared bankrupt. Your credit file is a important tool lenders rely on to control their risk. The higher your credit score they more likely you are to be considered for credit.

Whilst it’s a great step entering into a Trust Deed and taking responsibility for your finances and debts, it does highlight to future lenders that you haven’t been able to keep up with the terms and conditions of lending in the past. This is why it is important to start rebuilding your credit score after you have been discharged from your Trust Deed.

What factors negatively impact your credit file?

  • Not being registered on the electoral role at your current address.
  • Not having had much credit in the past – lenders can’t judge if you are reliable if you don’t have a history of paying credit.
  • Having any defaults or late payments on your file.
  • If you have a large amount of debt outstanding – this will highlight that you may not be able to pay back any new credit they lend to you.
  • Ever being declared bankrupt, if you have entered into a formal debt solution or have had any CCJs or court orders against you.
  • Applying for a lot of credit in a short space of time and a lot of credit checks have been performed on you.

What effect does a Trust Deed have on your credit file?

A Trust Deed will have a negative impact on your credit file as it signals to lenders that you have not been able to manage your creditors in the past and therefore will be considered a risk.

It is important to consider, however, the effect your existing debt is having on your credit file anyway. If you are thinking about entering into a Trust Deed then most likely you will be having serious financial problems and defaulting on payments which will appear on your credit file and will be considered a risk by lenders. Entering into a Trust Deed will allow you a fresh financial start after the 6 years has passed.

What happens to your credit file after a Trust Deed is complete?

Once you have successfully completed the terms of your Trust Deed, any debt remaining will be written off giving you a fresh financial start. Your Trust Deed will appear on your credit file for an additional 2 years after completion, during which time you may find it difficult to get credit. After these two years have passed you will be able to apply for credit again as easily as you would have before- however it’s important to ensure you don’t apply for too much credit and find yourself in financial trouble again.

How Long Does a Trust Deed Stay On My Credit File?

A Trust Deed remains on your credit file for 6 years from the date it becomes protected. This exceeds the term of most Trust Deeds which usually last for 4 years. Once you have met all your obligations and successfully completed your Trust Deed, your creditors should inform the credit reference agencies that your debt with them has been ‘satisfied’ or ‘settled’.

It will be more difficult to obtain credit in the two years after your Trust Deed ends, however, it’s not impossible. You will no longer have any outstanding unsecured debt and will be in a position to start rebuilding your credit rating again.

Once you have been discharged fully, it is a good idea to check your credit file to ensure your creditors have updated it to reflect your Trust Deed and the information they hold about you is accurate. You can also do this by sending the credit reference agencies a copy of your discharge certificate.

It is important to note it’s not your Trustees responsibility to update your credit file and may not be done automatically by your creditors, so it’s important to check this.

How do you rebuild your credit file?

  • Check you are on the electoral role
  • View your credit file and ensure that any debts which were included in your Trust Deed are marked as ‘satisfied’
  • Don’t make too many applications at once – spread them out
  • Apply for credit card with low interest rates

Having your credit file negatively impacted is only a small negative compared to the benefits of entering a Trust Deed. The biggest positive is after the 4 years all your remaining unsecured debt will be written off, allowing you to rebuild your credit file.