Petition to Reform the current system of payment markes on consumer credit reports

neilperks

Thrugelmir said:

neilperks said:

eskbanker said:

neilperks said:

In terms of the basic system, I agree that the markers should be applied fairly. With that said, there doesnt seem to be any clear distinction (by means of a marker) between a debtor who has repayed their account in reasonable time (albeit subsequent to a default), a debtor who has repaid a minimum amount for 6 years, and a debtor who has abandoned their account.

Despite these differing scenarios, the default is recorded on their file regardless,

But that's the way it should be - if an account was defaulted then anything subsequent to that can't change that basic historical fact of what unequivocally did happen.

The subsequent conduct, i.e. whether or not full or partial repayments are eventually made, is already reflected in the existing CRA data structures, so doesn't need new markers to represent the facts about what's happened.  In terms of the separate issue of how that data is interpreted, as mentioned in previous posts it's ultimately up to new creditors to decide how they use that data, but it's generally accepted that settlement does reflect better on the defaulter, i.e. better late than never.

I believe the potential benefit of this additional marker would indicate to the lender that a consumer is of lower risk compared to a similar account maked as defaulted.

Lenders would prefer to see a period of time where good account management is clearly demonstrated. 

I completely understand your point, and this would be the ideal scenario.

For those who may be subject to adverse credit, for whatever reason, do you think the current system could be improved / made fairer , as I've suggested above or otherwise, in anyway?

neilperks

mjm3346 said:

"I believe the potential benefit of this additional marker would indicate to the lender that a consumer is of lower risk compared to a similar account maked as defaulted."

Cannot see why a lender would bother to spend anytime looking at this just to choose between poor risk or very poor risk -  unless they had trouble getting good risk clients and were aiming for the Wonga etc end of the market

Thanks for your input, I can see where you are coming from on this, although I'm not sure how broadly classing people with adverse credit as the 'wonga end of the market'' really helps in anyway.

Are you happy with the current system too? Or would you make any changes if you could?

neilperks

eskbanker said:

neilperks said:

Just to reiterate again, the new marker would signify if /when a defaulted account was under mediation or had reached settlement under a repayment agreement with the lender and subsequently be marked as 'remedied', superseeding the prior defualt marker.

I believe the potential benefit of this additional marker would indicate to the lender that a consumer is of lower risk compared to a similar account maked as defaulted.

I must admit that I hadn't picked up on your distinction between delayed repayment with versus without (belated) agreement with the lender, which is effectively a fourth scenario on top of the three I was responding to, but 'remedied' would still be much the same as 'settled', i.e. it wouldn't supersede the default marker as such but would simply reflect post-default conduct. 

The fact remains that the repayment history will be visible on the credit file though, so prospective new lenders will still be able to see how quickly settlement was achieved, and to be honest are unlikely to be particularly interested in whether or not those timescales involved any consent from the creditor - the meaningful time to renegotiate repayment is before an account defaults....

You raised a valid point earler about being more granular when assessing risk, and I agree with you that the ideal scenario would be to resolve or renegotiate before an account defaults.

Hopefully by now it is apparent that I am referring to instances where an account has already defaulted, or whatever reason, and my proposal of a mediatory marker would potentially help those willing to settle and wanting to access future credit outside the confines of a recorded default.

You're right and I agree that the payment history will be visable on the credit file, and lenders may not necessarily be interested in how the account was resolved. However, I think therein lays part of the problem and perhaps lenders should be olbiged to consider the new marker?

neilperks

MovingForwards said:

To clarify this bit:

"With that said, there doesnt seem to be any clear distinction (by means of a marker) between a debtor who has repayed their account in reasonable time (albeit subsequent to a default), a debtor who has repaid a minimum amount for 6 years, and a debtor who has abandoned their account."

The marker on the account is shown as settled / satisfied or partly settled and then closed with a nil balance. Balances also reduce each month they're being paid. Lenders can see that.

A default draws a line under that credit problem and whether it's paid, or not, it drops off 6 years after being put on. 

The markers which cause lasting damage are AP / AR as they stay on for 6 years after the account has been settled and closed. It's really hard getting a company to put a default on after these have run for a while, even submitting the guidance, as it's not a requirement they have to follow.

Whatever marker is on the CRA reports, the damage does reduce overtime. There are some companies who won't ever lend while the markers show, but there's a lot more who will after they've been on for 3+ years.

Thank you for clarifying the current system, I do appreciate your input.

My proposal regards the default which, as you state, draws a line under the credit problem until it drops off after 6 years.

My issue with this is 1) if payment was later made toward the account, the default would still remain as the last marker on the account, and 2) if the account was repaid in full, the default marker would still remain as the last marker on the account.

As such, the negative impact of the default still tarnishes a person's credit worthiness / CRA report regardless of their effort to resolve; which is why I think there could be potential for an additional marker that should also be olbiged by creditors willing to lend to lower scoring consumers who are nevertheless making every effort to prove their worthiness in a system which current overly restricts their options.

Thrugelmir

neilperks said:

Thrugelmir said:

neilperks said:

eskbanker said:

neilperks said:

In terms of the basic system, I agree that the markers should be applied fairly. With that said, there doesnt seem to be any clear distinction (by means of a marker) between a debtor who has repayed their account in reasonable time (albeit subsequent to a default), a debtor who has repaid a minimum amount for 6 years, and a debtor who has abandoned their account.

Despite these differing scenarios, the default is recorded on their file regardless,

But that's the way it should be - if an account was defaulted then anything subsequent to that can't change that basic historical fact of what unequivocally did happen.

The subsequent conduct, i.e. whether or not full or partial repayments are eventually made, is already reflected in the existing CRA data structures, so doesn't need new markers to represent the facts about what's happened.  In terms of the separate issue of how that data is interpreted, as mentioned in previous posts it's ultimately up to new creditors to decide how they use that data, but it's generally accepted that settlement does reflect better on the defaulter, i.e. better late than never.

I believe the potential benefit of this additional marker would indicate to the lender that a consumer is of lower risk compared to a similar account maked as defaulted.

Lenders would prefer to see a period of time where good account management is clearly demonstrated. 

I completely understand your point, and this would be the ideal scenario.

For those who may be subject to adverse credit, for whatever reason, do you think the current system could be improved / made fairer , as I've suggested above or otherwise, in anyway?

For those with adverse credit history they are lenders that target this segment of the market. Where manual underwriting is able to take into account individual personal circumstances. For mainstream lenders there's a sufficiently large pool of customers to find adequate volumes of new business. 

eskbanker

neilperks said:
You raised a valid point earler about being more granular when assessing risk

That wasn't me but I agree with the principle!

neilperks said:

Hopefully by now it is apparent that I am referring to instances where an account has already defaulted, or whatever reason, and my proposal of a mediatory marker would potentially help those willing to settle and wanting to access future credit outside the confines of a recorded default.

You're right and I agree that the payment history will be visable on the credit file, and lenders may not necessarily be interested in how the account was resolved. However, I think therein lays part of the problem and perhaps lenders should be olbiged to consider the new marker?

I still think it's important to understand the difference between the data held by credit rating agencies and its interpretation and use by lenders when assessing applications.  Even if the former were compelled by legislation or regulation to start recording more data, there isn't any realistic way of insisting that the latter act on it, as their risk assessment processes are internal and proprietary, and relate solely to their commercial decisions about whether or not to offer credit, which are in their sole discretion.

Fundamentally though, I don't really accept the premise that someone who defaulted but later managed to agree a repayment plan (and see it through) is likely to be significantly more attractive to lenders than someone who repaid without agreement, so don't believe that fleshing out more detail of the journey from default to settled (beyond the simple payment history) is the sort of granularity that adds value.

Sensory

Could there be an additional marker that specifically indicates a remedied default? Yes.
Does it provide further insight without requiring further detail? Yes. There would be a clear current distinction between Rs and Ds, despite both having the same historical factual basis.

Would it make an effectual difference to lenders assessing applications? Most likely not, it would not change a decline to an acceptance.

neilperks

Sensory said:

Could there be an additional marker that specifically indicates a remedied default? Yes.
Does it provide further insight without requiring further detail? Yes. There would be a clear current distinction between Rs and Ds, despite both having the same historical factual basis.

Would it make an effectual difference to lenders assessing applications? Most likely not, it would not change a decline to an acceptance.

Thank you for your points, I appreciate that you seemingly agree with the concept but doubt its utility ... would that be fair to say?

neilperks

neilperks said:

Hopefully by now it is apparent that I am referring to instances where an account has already defaulted, or whatever reason, and my proposal of a mediatory marker would potentially help those willing to settle and wanting to access future credit outside the confines of a recorded default.

You're right and I agree that the payment history will be visable on the credit file, and lenders may not necessarily be interested in how the account was resolved. However, I think therein lays part of the problem and perhaps lenders should be olbiged to consider the new marker?

I still think it's important to understand the difference between the data held by credit rating agencies and its interpretation and use by lenders when assessing applications.  Even if the former were compelled by legislation or regulation to start recording more data, there isn't any realistic way of insisting that the latter act on it, as their risk assessment processes are internal and proprietary, and relate solely to their commercial decisions about whether or not to offer credit, which are in their sole discretion.

Fundamentally though, I don't really accept the premise that someone who defaulted but later managed to agree a repayment plan (and see it through) is likely to be significantly more attractive to lenders than someone who repaid without agreement, so don't believe that fleshing out more detail of the journey from default to settled (beyond the simple payment history) is the sort of granularity that adds value.

Thank you for eliquently ironing that out

Obviously, it is ultimately at the lenders discretion and it would only be hoped that the additional insight provided by a new marker would increase the chances of credit being offered, even if only slightly.

I can also understand the scorn from yourself and others regarding the premise you outline in your answer. It's certainly hard to find a fair solution for those who are experiencing adverse credit from poor mental health, personal circumstances etc, without helping those who are happy to abuse the system.

Can I ask if you have experienced adverse credit in the past? Or found it difficult to obtain credit when you needed it?

neilperks

It would be interesting to gage insight into your experiences, if anyone is willing to share?

Can I ask if you have experienced adverse credit in the past? Or found it difficult to obtain credit when you needed it?