How to Rebuild Your Credit After a Default or CCJ

If you've defaulted on a loan or gotten a County Court Judgment (CCJ), you may feel lost or trapped; like you've found yourself in a financial hole that you need to find your way out of. But try not to fret, it's not the end of the world. In fact, rebuilding your credit may not even be as hard as you think. 

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Here we'll go over how these two things affect your credit, how long they stay on file, and actionable steps you can take to get your finances in the green. Don't give up hope, rebuilding is possible with the right tools and some consistency.

Before we dive into the impact defaults and CCJs have on your credit, let's first define what each are and how they work.

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What are CCJs and Defaults?

A County Court Judgment is when a court orders a person or business to pay money that is owed to a creditor after they have previously failed or refused to pay. In order to enact a CCJ, the creditor has to file a claim to the court. Now, if you've ignored payments to your creditor because you cannot pay them, there are financing options that the court can facilitate — paying the total in set installments, or even varying the judgment (i.e., changing the terms or amount of payment.) 

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If you have been served a CCJ notice, it's critical to respond in a timely manner (within 14 days) so that the court may be more lenient when renegotiating repayment terms.

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Similar to a CCJ, a default happens when you are unable to meet the terms of a loan or mortgage agreement. However, unlike a CCJ, a default does not indicate that you've been taken to court. It's merely a flag on your financial history that indicates to future creditors that you're unreliable. It is not a court order to pay back your debt, but it will inevitably make borrowing in the future much more difficult (or expensive.)

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What Happens to Your Credit After a Default or CCJ?

There's no denying that having a CCJ or default on your record can severely hurt your future financial options.

When you default, it will stay on your credit report for six years and can decrease your credit score significantly; sometimes in the hundreds of points. Additionally, lenders will see you as high risk and thus less likely to lend you money, at least with favourable terms. In many cases, you will be declined for new lines of credit. If you are approved, you'll likely be stuck with high interest rates and smaller borrowing limits. Even once you do pay off the owed debt, defaults will remain on your credit file for the full six years, but will be marked as 'paid', meaning it still stains your report albeit with less impact.

CCJs are worse, unfortunately. It is recorded on your credit file and on the Registry Trust, which is often checked by employers, lenders, and even landlords. While the specific decrease in credit score varies greatly in each situation, some sources have claimed that you can expect to lose around 250 points on your credit score.

Like defaults, CCJs will also remain on your file for six years, with one exception: If you are able to pay off the full amount within one calendar month of the issued judgment, you can get it removed more quickly. However, if you've found yourself in a CCJ, chances are you will be unable to repay so quickly.

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Can You Rebuild Your Credit with a Default or CCJ Still Showing?

Short answer: Yes, you can rebuild your credit with a default or CCJ on your credit report. The key is understanding that lenders look for recent responsible behaviour. Good credit behaviour includes:

• Making all repayments on time
• Keeping low credit utilisation to offset old marks
• Registering on the electoral roll
• Not applying for new lines of credit until you're in a stronger position
• Using financial assistance and credit building tools

Realistically, you should be focused on rebuilding, rather than erasing the marks overnight. Sound financial habits may take some time to build, but they are the only surefire way out of a default or CCJ.

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Step-by-Step: How to Rebuild Your Credit After a Default or CCJ

Step 1: Check Your Credit Report

First and foremost, make sure to get free copies of your credit report from all three of the main credit unions: Experian, Equifax, and TransUnion. In some cases, you could have been issued a CCJ or default and never received notice, in which case you may be able to dispute it and have it immediately removed from your record. Be sure to look for errors or outdated information on your credit report and dispute these inaccuracies.

Step 2: Settle Outstanding Debts

It may come as no surprise that paying off the CCJ or default is the quickest way to have them marked as 'satisfied', which may lower the red flags for future lenders. 

Additionally, in the case of a CCJ, make sure to respond to the notifications as soon as possible to indicate to the court that you're taking the notice seriously. It will make them more likely to renegotiate your repayment terms. They may even lower the total amount owed, or at least work with you to set up more manageable payments.

Step 3: Keep Payments Consistent

The key to improving your credit score is consistent, on-time payments. Paying all active accounts such as rent, utilities, etc. in full and on time for an extended period of time indicates that you've been able to become more reliable in repayments. 

To help with this, automate payments as much as possible. Set up direct debits for minimum payments, use standing orders for fixed-amount payments, and sync your repayments with your payday if you have regular income. By scheduling your repayments one or two days after your payday, you can get on the road to healthy finances before you even see what your expendable income is each month.

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Step 4: Register on the Electoral Roll

It may sound silly, but registering on the electoral roll actually helps build credit. This is because lenders don't just care about what you pay, they care about who you are and where you live; and being on the electoral roll is the easiest way for them to verify your identity. Additionally, all of the UK credit agencies include electoral roll data in their scoring models, so not being registered may cost you credit points if they have no proof of residence.

Step 5: Consider a Credit Builder Card or Loan

Both of these options aim to help you prove that you're able to handle credit responsibly. A credit builder card is a credit card with a low limit and high interest rate that encourages low-risk behaviour and thus proves reliability. Credit builder card activity is reported directly to credit agencies, so responsible behaviour is recognized quickly. However, the inverse is also true — carrying a balance or overspending can make it easy to slide further into debt and further damage your credit. So use it with caution.

Credit builder loans, on the other hand, are a useful training tool. You borrow a small amount of money, but instead of getting the money up front, your monthly payments go into a locked savings account. Once you've made the payments, you receive the money and your on-time payments are directly reported to the credit agencies.

The bottom line is that these two options only work if you never miss a payment. So use these with caution.

Step 6: Use a Credit Building App

Your day-to-day financial health is your responsibility alone, but there are tools out there to help. Pave, for example, helps you monitor your score progress by keeping your scores from each agency in one centralised place. Additionally, it allows you to connect your bank accounts to keep track and get alerts on priority bills that will impact your credit score. 

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Building credit can be a long and difficult process but the financial reward is worth the time spent. Fortunately, Pave exists. Pave is an award-winning credit-builder app that actively works with you to help you build your credit score. No hard credit checks required. In addition, Pave will help you keep on top  of your finances by giving you personalised credit fixes, bill reminders and much more. 

To learn more and see why hundreds of thousands of people across the UK have turned to Pave to improve their credit score, download the app today. Available on App Store and Google Play, or sign up online.

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