Settling with all creditors on a DMP - impact on Credit Rating

Background: I have been on a DMP with Stepchange since Nov/Dev 2016, my original debts of around £35k are now down to £8k. I have secured a loan for that amount with the intention of settling all historic "bad" debt. My wife and I will be coming into a significant sum of money in the next 6-12 months and would like to use that money for a deposit to buy a house. 
My question is this, what approach should I take with my creditors? Can I offer and F&F settlement and stipulate they remove any defaults from my file?
Will a partial settlement reflect worse on my credit rating baring in mind the 6 year anniversary for the majority of the defaults being recorded is coming up in the next 2-3 months?

The purpose of the loan is to start rebuilding my credit rating so when the time comes my wife and I are more able to get "proper" mortgage and not one from an impaired credit specialist so I want any action I take to be with my credit rating in mind. If I can save a few quid off the settlement amount then great, as long as it's not at the cost of my credit rating.

I did want to highlight how unbelievably good Stepchange have been. Whenever I have had to deal with them but especially at the start when I was facing up to my situation, they were first class. Empathetic and non-judgemental, which was just what I needed at the time. 


  • fatbelly
    fatbelly Posts: 20,243
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    You can offer full & final settlement

    The defaults will drop off 6 years after they started. In your case I would expect them to be nearly 6 years old now.

    If you do settle any before they drop off they will change to partially settled as a recognition of what has happened

    If you want to improve your credit record you need a stable address, to be on the electoral roll and have one or two credit cards that you pay off in full each month.

    Your new 8k loan will be at interest and will be taken into account in mortgage offers so pay that off as soon as possible.
  • Rob5342
    Rob5342 Posts: 1,363
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    edited 14 November 2022 at 9:12AM
    Each loan will disappear completely when it gets to 6 years from the default date. In terms of your credit report all you need to think about are the loans that will still be showing when it comes to the time you want to apply for a mortgage.

    Given their age you may want to see if any are unenforcable. If they are then you won't have to pay them at all and it will make no difference to anything else if they have dropped off you credit file.
  • EssexHebridean
    EssexHebridean Posts: 20,883
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    edited 14 November 2022 at 9:41AM
    Your "credit rating" is imaginary, so ignore it. there is no magic number that lenders see that tells them "yes - lend to this one!" or "God no, avoid like the plague!" - instead what lenders see is your credit history, so by this time next year as things stand now there is a likelihood that what most of them might see is a fair amount of historic debt but with regular payments being made and a pretty clear picture that you've learned about managing money and are no longer tempted into debt easily. Now, with that in mid, the question is whether you would be improving things by taking on what many lenders might see as a consolidation loan? It could give the impression that you've learned nothing over the time you've had the DMP - the difficulty is that it is as far as I know impossible to know what future mortgage lenders might think.

    How long until you will be debt free if you just follow the DMP as you have been? Have you been saving money towards perhaps as suggested offering F&F's?  Also - how is your household budgeting working out - do you have an emergency fund saved for example? Do you set aside monthly amounts to cover things like annual insurances, Christmas spending, or holiday costs, so that those things are purchased without further debt? Do you now have additional surplus that could be put towards clearing debt faster even if F&F's weren't accepted?

    I'll be honest - someone who'd realistically nearing the end of a lengthy DMP who is seemingly champing at the bit to take on more debt makes me nervous - and especially when that person is also looking at taking on probably their biggest ever financial commitment - a mortgage - and even MORE especially when it appears that commitment is going to be entered into without first doing the "groundwork" of a period of personal "financial austerity" if you like in order to save a deposit etc. 

    Honest advice? Get through the debt clearing by following the process - don't be tempted to take what is essentially the easy way out, and especially not when that "easy" way out is also more costly - that doesn't show good financial understanding, to me. Then give yourselves a period of adjustment when you prove that you can manage your budget and save money each month - who knows, you might either be able to add a bit extra to your deposit pot or possibly better still, be able to go into your new home with a really good, solid emergency fund already in place that you can then build on. Once you have your home and your mortgage don't rest easy either - start thinking about overpayments, learn how much you are allowed to overpay but as quickly as you can start OP'ing something - even if it's just by rounding up your monthly payment to the next £10 bracket. The sooner you start, the more of an effect it has - and particularly at the sorts of interest rates you are likely to be looking at. 

    Think about building financial health for the long term - not a quick cosmetic fix. 

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  • Rob5342
    Rob5342 Posts: 1,363
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    edited 14 November 2022 at 10:08AM
    EssexHebridean makes some good points. Have you considered just carrying on with the DMP, using your significant amount of money to make full and final settlement offers, and then using what would have been the DMP money to bring your savings up to the level you need to buy somewhere?

    There doesn't seem a lot of point worrying about your credit report too much as most debts will drop off soon anyway, and if some are unenforcable you can stop paying completely with no effect on your credit report. The only way the mortgage lender would know about them is by looking at your bank statements but if you leave it long enough they probably won't look that far back. If you want something for them to base a credit history decision on could you get a credit card that you pay off each month.

  • RAS
    RAS Posts: 32,468
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    Are any of your debts currently marked as arrangement to pay? Otherwise the defaults will fall off your account sometime time in the next year or so, nicely fitting with your windfall. And the potential mortgage providers won't know anything about them.

    Taking out a new loan just now will look worse than just keeping up your DMP payments, as that'll be visible for the next 6 years or more.

    As suggested, get a credit card with a small limit and pay that off in full every month. Maybe buy your petrol or groceries (something regular) and use that to demonstrate good money management.  
    The person who has not made a mistake, has made nothing
  • fatbelly
    fatbelly Posts: 20,243
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    I thought the new loan was a done deal. If not, don't take it. The last thing you want now is another loan on your file.

    If you have taken it, try to clear it asap.
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