Why is my credit file impacted when I am making payments?
Whilst making reduced payments has a negative impact on your credit file, it makes less of a negative impact in comparison to making no payment at all.
If you are seeing a negative on your credit file it will be because you are paying less than the amount that you agreed to when you took out the agreement, but it will be significantly better than if you were making no payments at all. But just to make you aware, the less that you do pay compared to the original amount the bigger the impact on your file will be.
Why is this?
This is because of the way that Credit Reference Agencies like Experian, TransUnion and Equifax work. They ask us for 3 key pieces of information:
- Arrears (how much behind you are compared to how much you should have paid)
- Outstanding Balance (how much you still owe in total)
- If you have Defaulted (as set out by the original terms)
The Arrears is used to show how many whole payments behind the original plan you are. You will see this on your file as 0, 1, 2, 3, 4 etc (when you are paying everything as you should be, your credit file shows 0s. The higher the number gets, the more payments you have missed). If you are one whole payment behind, or more, lots of credit services will show this as a missed payment.
There is no flag to say that you are making payments and a lot of services will just use this to say a payment has been missed. However, other lenders will look at the outstanding balance on your account and as it is reducing each month, they can see that you are making payments, but at a reduced rate.
This means they can see how much you are paying each month and the more you are paying the better it will be for your credit file. This will continue to be reported on your credit file until the arrears on your account is reduced to less than one whole month’s instalment, as per the original plan.
If you were originally due to be paying £100 a month, but you had to reduce your payments to £75 a month, it would take four months for your arrears to reach £100 (4x£25). It would only be at this point that credit reference agencies started showing this as a missed payment and it would be shown on your credit file as 1.
If you were originally due to be paying £100 a month but you had to reduce your payments to £50 a month, it would only take two months for your arrears to reach £100 (2x£50). It would only be at this point that credit reference agencies started showing this as a missed payment and it would be shown on your credit file as 1.
If you were originally due to be paying £100 a month but you couldn’t make a payment for 3 months. This would be shown as 1, then 2 and then 3 as each payment was missed. If you then were able to pay off the arrears and resume your normal payments your credit file will go back to 0 and show that you are no longer in arrears.
I don’t understand
Please talk to us and we will explain what is happening in your individual circumstances. We can work together to find out a payment plan that minimises the impact on your credit file but is affordable for your circumstances.
Why do you do this?
We must report to credit reference agencies in line with the guidance set out by the ICO (Information Commissioner's Office). Reporting on people’s payments is really important as it is one of the best ways that customers can be protected from taking out too much finance. Finance companies understand that situations in life can be difficult with circumstances that result in missed or reduced payments. The biggest thing that they want to see is after the problem, how did you deal with the situation and how long did it take for you to pay your creditors back.