Letter of explanation for past bad credit

bomile

Hi,

I'm after some advice regarding a letter of explanation that's been requested after a recent mortgage application.

Background:

I received an initial approval in principle and progressed to full application. The majority of this was already completed from the AIP but with a few additional questions.

One of these questions was about past bad credit and I answered honestly that I'd previously had 1) a default for a personal bank loan and 2) had entered into an arrangement with a washing machine HP company.

Neither of these appear on my credit file as they were from 8 and 9 years ago respectively.

For the default I've been paying a nominal amount of £20pm to a dca ever since and there is around 2k left.

The washing machine was paid off 12 months after entering a payment plan.

The mortgage underwriter is asking for a letter of explanation with the reasons as to why I was unable to fulfill the credit commitments as well as documentary evidence that payment arrangements to creditors are fully settled. If payment arrangements are ongoing the mortgage company is unable to proceed.

The one I'm worried about is the ongoing payment to the dca.

First off I wish I'd claimed ignorance and not owned up to the past credit problems as nothing is showing on my credit file.

I do have a couple of options and would like some advice on which would be the best route to take.

1) I could write the letter of explanation and claim I have no paperwork as the debts are so old (this is true of debt 2) and that all debts are settled and hope that's the end of it.

2) I could offer the dca a full and final and get a letter of settlement from them (I'm happy to do this as part of the remortgage fees).

3)Speak to the underwriter, honestly, like a grown up, and hope everything will be okay, even though I feel that being honest in the first place brought this to the underwriters attention.

If I go for option 2 would a settled flag appear on my credit file and sit there for a further 6 years? I definitely don't want this.

Any thoughts, or other options I've not considered, are greatly appreciated especially if anyone knows for certain if a settled flag will or won;t be applied to a default that dropped off a credit file about 2 years ago.

Many thanks in advance.

Thrugelmir

Why haven't you previously settled the bank loan default?

That's the question you need to answer. Will need to be convincing.

bomile

Hi Thrugelmir,


Thanks for the quick response.


Initially the thought process at the time was to continue paying a small amount by standing order and not think about it. My previous mortgage was with Northern Rock and they were throwing money around so it wasn't an issue.


The longer answer is that I was made redundant just over 2 years ago, fortunately started work 6 months later, my wife was 8 month pregnant at the time so spending redundancy money on an old defaulted debt which was ticking along at £20 pm and with no interest seemed the best route.


I'm now in a steady job, my wife is going back to work after a career break in a couple of months so I feel I could settle the debt now if required.


TBH though I if it was a choice of paying off a credit card with a few hundred quid on or a dca debt that has no interest charges I'd prefer to continue paying £20pm to the dca

Thrugelmir

Presumably you have saved money in order to afford a house purchase?

Your circumstances changed two years ago but you defaulted 6 years before that.

bomile

Kind of, Northern Rock gave us a 100% mortgage so we didn't have to save for a deposit. The default came about as the personal loan was just too expensive to maintain. I'd moved from the South of England to the Midlands due to cost of living and taken a reduced salary.


With regards to the dca once in the payment arrangement once the monthly payments had been agreed I just continued paying it and it ticked along nicely.


I guess you're right I could have upped the payments to clear it quicker but chose to pay more to Northern Rock (the mortgage was a 90% mortgage and a secured load for 10%) to try and bring the secured loan element of the mortgage down.

bomile

Hi All,

Is anyone able to answer the question that's really important to me.

Will paying off a default that's no longer showing on my credit file get re-posted as settled?

Or now that it's gone it will remain gone?

Thanks