Reviewed 5th December 2019
But how will the Trust Deed have affected your credit rating, and what can you do to improve the situation?
A Trust Deed remains on your credit file for six years from its start date, alongside previous default notices, and before you’re discharged you won’t be able to obtain credit. When the Trust Deed term is complete, you’ll find that lenders continue to be extremely reluctant to lend until you build up a better credit score, and demonstrate that you can handle your finances.
Here are a few ideas to help you do just that, and secure a more promising financial future:
Once you’ve been discharged from the Trust Deed, you should let the credit reference agencies know as soon as possible. Your trustee will issue a Discharge Certificate which should be copied, and sent to the three main agencies so they can log it on your file.
Credit reference agencies are used by lenders as part of their due diligence procedures, and the information held about you will be a major factor in their willingness to lend. This is why you must check at regular intervals that the information on your credit file is correct.
If creditors have failed to inform the agencies that you’ve repaid certain debts, it will be harming your credit rating. So if you find an error, you should contact the creditor concerned and request that they inform the credit reference agency. The debt should then be marked as ‘satisfied’ on your credit file.
Being on the register to vote confirms to lenders that you have a permanent address, which will boost your chances of being offered credit when the time comes.
Credit can be used to boost your credit score once the Trust Deed term is complete. If you don’t have any lines of credit in the long-term, it can have a detrimental effect on your credit rating. Lenders need to see that you’re responsible with money, and a good way to demonstrate this is using ‘credit builder’ credit cards.
A number of specialist providers offer these cards for people who are trying to rebuild their credit file following a period of debt. As long as you meet all the required repayments in full and on time, your credit rating will be boosted over time.
If you fail to make a single repayment, however, your credit file will be further damaged and you’ll find it significantly more difficult to borrow in the future. Additionally, it’s better to use this type of card for small purchases which can be repaid easily in full, rather than large items, as the interest rates are extremely high if you default.
Lenders generally look at the recent credit activity when they check a credit file, so over time, repaying the balance on your card each month will work in your favour, as it shows that you can now be trusted as a borrower.
Additionally, your lender may be inclined to reduce the rate of interest attached to your card, if you repay in full over the long-term.
Pre-paid credit cards may be an option to help you rebuild your credit rating if there are no other alternatives at the end of the Trust Deed. You don’t have to prove your income to the provider when you apply for one of these cards, and there are no credit checks, so you’re guaranteed to be accepted.
There is a monthly fee, however, and this can be ‘loaned’ to you on the card. As long as you repay this monthly fee on time each month, your credit rating is built up and you become eligible for more lending.
Scotland Debt Solutions can offer further detailed advice tailored to your own situation following the end a Trust Deed. We work purely on behalf of Scottish residents in debt, and will arrange a free appointment at one of five offices around Scotland.
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Applying for a trust deed has been on my mind for some time but I’m concerned that all creditors may not agree to my trust deed? What if one of them doesn’t agree?
Yes, although a Trust Deed is not a court process the creditors you have made defaults with are likely to notify the credit reference agencies that you have missed payments. There will be an entry on the Register of Insolvencies that you are subject to a Trust Deed.
A Trust Deed can be setup very quickly. Once you have discussed your financial situation in full with an Advisor and taken time to consider that this is the most appropriate option taking all factors into account. The Trust Deed document and accompanying paperwork can be signed which then gives the Trustee the relevant powers to act on your behalf. The Trustee will make contact with all your creditors and from that point you can stop making payments to the individual creditors and pass all correspondence for the Trustee to deal with. Thus relieving you from the pressure instantaneously.
The Trustee will write to you every six months throughout the period of your Trust Deed to monitor and assess your Financial Position and your ability to maintain the contribution at the current level.
There are no initial setup or additional hidden costs in a trust deed. The Trustee’s fee’s and outlays for administering your trust deed are met from the contributions you pay in on a monthly basis or/and from the assets which may have to be realised in your Trust Deed. The Trustee is paid prior to making a distribution to your creditors. The Trustee’s fees are broken down into three categories, fixed fee, percentage of realisations and costs and expenses associated with the Trust Deed.
A protected Trust Deed is binding on your creditors. It means that if you comply with the terms of your trust deed then the creditors cannot take any further action against you to recover any debts you might be due to them. They cannot arrest your earnings or petition for your sequestration whilst you are subject to a Protected Trust Deed. Unlike an ordinary Trust Deed which is not binding on your creditors. If when presented with your Trust Deed Proposals more than half in number or one third in value of creditors object to your Trust Deed then it will fail to reach protected status.
The Trustee will write to you every six months throughout the period of your Trust Deed to monitor and assess your Financial Position and your ability to maintain the contribution at the current level. In addition to this the Trustee will explain at the outset of the Trust Deed that should you have any change in circumstance which will affect your ability to make a contribution you must update him with immediate effect. If you have a change in circumstance and notify the Trustee of this providing evidence to substantiate your change in circumstance. The Trustee will take all factors into account before making a decision as to whether to reduce, suspend, stop or infact increase your contribution. It may be depending on the circumstance that your Trust Deed period is extended or shortened or that you are able to suspend the payments until such time as your Income position improves.
The main differences between and IVA and Trust Deed are that one is an English Debt Relief process and the other is a Scottish debt relief process. An IVA can only be accessed by English and Welsh residents whereas Trust Deeds are only available for Scottish Residents. In an IVA you must have minimum unsecured debts of £15,000 whereas a Trust Deed is a minimum of £5000. The duration is also slightly different in that an IVA generally lasts for sixty months whereas a Trust Deed lasts for forty eight months.
I am a single mother of two children with a number of debts and loans, including some spiralling payday loans that are stressing me out. I have looked into debt management plans and trust deeds and it seems as though the trust deed is the best option but I’m not sure whether I can consolidate all my debts into one monthly payment? Can loans be included in this?
Our Scottish based team can help advise you on your debt problems.