Why it’s important to understand the financial background of a debtor
Introduction
Lending in all forms comes with a risk, and you can be left with monetary losses if you don’t take the time to get to know the financial background of your debtor Rather than trying to discover important information after someone defaults, take the time to assess your risk before parting with your money or goods so that you can enjoy less risky lending.
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What is a Creditor and a Debtor?
A debtor is anyone that has borrowed money, goods or services and has not paid for them in full, opting to pay by instalments instead. Until the balance of the loan is paid, a person remains a debtor. If you are the person lending, you are a creditor and are owed the repayments for the lifetime of the debt.
Creditors are not just banks that lend cash, they are anyone that has money owed to them by someone who has taken out a payment plan to pay for goods, loans, hire purchase and more. Failing to pay debts is a crime, and creditors are tasked with pursuing debtors when they fail to pay.
Why is Debt Rising?
It's a sad fact that consumer debt is rising, and more debtors are defaulting than ever before. When you consider the pandemic, recession and people living beyond their means, it is clear to see that debt has become an accepted part of society.
However, as more people are defaulting on financial agreements, debt charities and financial experts are calling for more stringent checks and a better understanding of a debtors financial background so that appropriate agreements can be offered.
Why Does a Debtors Financial Background Matter?
Someone’s financial background can provide a good insight into how they manage debt and what their repayment history looks like. It’s clear that someone who has multiple defaults and ongoing debt may not be the best person to lend to as there is a far greater risk that they will default when you compare them to someone who has managed and cleared previous debt well.
If a potential debtor has a limited financial background, then this is also something that a creditor needs to be wary of as the lack of financial history does not provide the reassurance needed that a person is able to manage their finances effectively.
It’s true that there are many people who can be trusted to manage their finances but who may have had a previously poor credit rating. However, in these cases, you will find that their credit history reflects this narrative and allows you to see the changes they have made to become more trusted.
Ultimately all lending is risky, but when you know the financial background of a potential debtor, you can take an informed decision on whether the risk is low enough for you to lend. Failing to do these checks leaves you vulnerable to potential defaults that could have been predicted with better background checks.
The Legal Responsibility to Check Financial Backgrounds
Working out the risk level for lending is clearly important to a potential creditor, but it is also a legal responsibility. Lending money to someone that does not have the means to pay it back is considered to be poor lending practise and opens up a path for legal recourse.
By checking the financial history of a potential debtor, creditors can be certain that the person is in a strong financial position and is able to pay what they owe. If their history shows a negative relationship with credit, then the creditor should seriously consider declining the application to protect both themselves and the person that has applied.
There have been a number of high-profile legal cases where creditors have been forced to pay compensation and close their services because they were not stringent in checking affordability, an essential part of financial history searching. It is clear that the role of a creditor is much more than just lending, it is being responsible for lending decisions and ensuring that debtors are properly checked and supported before they are able to take out any form of credit.
How a Credit Reference Agency is Used by Creditors
The way in which a creditor checks a debtor’s financial history is through a credit reference agency. This not only ensures that the information is accurate and up to date but also protects sensitive information about debtors that is not relevant to their applications.
There are three main credit reference agencies in the UK – Experian, Equifax and TransUnion. Each of these agencies has legal permission to collect and store information about individual consumer’s borrowing and financial behaviours so that they can report on this to relevant parties, including creditors.
The information that a credit reference agency can provide to a creditor looking for financial history includes:
· Electoral Roll information including where you are registered to vote and how long you've been registered.
· Public records that give information on CCJs, Bankruptcy, IVAs, Debt Relief Orders and more.
· Account information that shows what accounts you have and whether they are up to date and paid on time or defaulted.
· Repossessions are reported if your home has ever been repossessed.
· Financial associations are also reported on when you are financially associated with another person through a joint account or credit agreement.
· Previous searches that have been completed and information on the companies that have completed the search.
· Linked addresses that show the history of where you have lived and when.
It is important to note that the information stored on a credit report only goes back over the past six years, meaning that creditors may not be able to find financial history beyond this point, which is good when a debtor has experienced negative debt in the past but has resolved the problem and moved forward.
How a Creditor Locates Bad Debt
Unfortunately, no matter how careful a creditor is with their financial history checking, there is always a risk that a debtor will default. To be able to follow the right process for recovery, a creditor needs to have access to up to date contact and address details for a debtor to be able to prove that the debtor has received the reminders that are sent.
However, no matter how organised a creditor is when first issuing funds, debtors may not always keep them in the loop when they move to a new house or change numbers. This then leaves creditors with the job of trying to find their debtors so that they can follow the legal route to debt recovery.
How to Find a Debtor if They Are Failing to Engage
Unfortunately, it can be very hard to find a debtor when they have defaulted, and so many creditors turn to debt tracing companies to get help. These companies work hard to find accurate and verified locations and contact details for a debtor so that a creditor can prove that they have sent their demands to the right place.
The reason that using a trusted debt tracing company is so important is that when enforcement action is needed, a creditor must prove that they obtained their information through the right channels and in a legal manner. Failing to follow these processes can leave creditors with cancelled legal action and unpaid debts that can cost their business.
How DebtTrace Can Help
If you are owed money and need to locate your debtor, then DebtTrace has the solutions you need! The following services are used frequently by creditors to locate debtors and secure positive outcomes to bad debt:
Basic Address Tracing Service
This service will help you find a verified address for your debtor. We use credit reference agency information and research data to ensure that the address we provide is accurate and up to date. It costs just £19.99 exc VAT and helps you to get the info you need with GDPR compliance.
Advanced Search
If you need more than just an address for your debtor, then you may want to use the DebtTrace Advanced Search and get access to information such as homeownership details, insolvency information, current address, landline telephone number, mobile telephone number and even CCJ information. It costs just £55 exc VAT and will provide you with everything you need to proceed to legal action.
No one wants to be in a position where they have to chase debt, but sometimes it is necessary and doing it with the support of a people tracing service like DebtTrace makes it as easy as possible.
If you have any questions about our tracing agents services or need help to locate a debtor that is trying to evade your communication, then don't hesitate to get in touch – we’d love to help!
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For more advice and information on tracing debtors
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