If you’ve ever had a loan, credit card, or other type of debt, then it’s likely you’ve heard of the term “default.” A default is when you fail to make payments on your debt for at least 3 months. At this point the default is recorded on your credit file.
Having a default on your credit file can cause serious damage to your credit score. This can impact your ability to borrow money in the future. If you want to know more about defaults, this is where you’ll find out. We’ll discuss what a default is, how long it stays on your credit report, and what you can do about.
What is a Default?
A default is a failure to repay a debt. This can happen when a borrower falls behind on their payments or is unable to pay the minimum amount.
When a default occurs, the lender will take the following steps:
- They’ll send you notice in a letter saying that a default will be issued. They should give you two weeks’ notice before issuing the default. This gives you time to catch up on the shortfall in your repayments and avoid the default being issued.
- If the default is issued, it will be because you’ve fallen at least 3 months behind on your repayments. At this point the default is reported on your credit file. The default shows that you’ve broken the agreement you signed when you borrowed the money. In this agreement, you would have committed to making the payments when they were due.
- After the default is issued, you still have to make arrangements to repay your debt. If you don’t the lender may take action to recover the money that’s owed. They could:
- Take legal action to recover the money.
- Sell the debt to a debt collection agency.
- Add extra fees and charges.
How Can I Recognise a Default Notice on My Credit Report?
A default notice is a formal declaration from a lender that you’ve failed to repay a debt. There are two main ways to find out if a default notice has appeared on your credit report.
- First, you should receive a letter from the lender explaining that a default notice is being issued against you. This should be at least 14 days before they plan to report the default on your credit file. So, you should know about it in advance.
- Second, once the default has been issued, you’ll see it on your credit file. You can check your credit file with the three main credit reference agencies. In the UK, these are:
- Experian
- Equifax
- TransUnion
You can check your credit report for free every 12 months with these agencies.
How Does a Default Affect My Credit Score?
A default has a negative impact on your credit score. It shows that you’ve broken your agreement with the lender who reported the default.
This could be an issue when applying for credit in the future. This is because lenders prefer to lend to people who are likely to pay back the money in line with the agreed terms. Having a default on your credit file could mean you’ll be charged higher interest rates in the future.
How Long Will a Default Stay on My Credit Report?
A default can stay on your credit report for up to six years. While it’s there, it’ll have a negative impact on your credit score. That’s why it’s better to avoid getting a default registered on your credit file if you can.
If you’re struggling to make payments on your debts, try contacting the lender to set up a payment plan. This will allow you to make smaller, more manageable payments over time. If you do this before the default’s issued it could help stop the default from appearing on your credit report.
What Should I Do if I Have a Default on My Credit File?
If you have a default on your file, it’s important to take steps to improve your credit rating. This will help you when you want to borrow money in the future. The table below shows some do’s and don’ts that can help you improve your credit score.
| Do’s that’ll help your credit file with a default | Don’ts that’ll harm your credit file with a default |
| Settle your defaulted debt as soon as you can. This will show it as ‘satisfied’ on your credit report which shows you’ve been responsible paying back your debt. | Avoid paying back the defaulted debt so that the lender takes further action. They may go to court or pass the debt to a collection agency. |
| Speak with the lender about setting up a payment plan to pay back the money. It’ll help to show that you’re being responsible. And make all your debt repayments on time. | Miss or make late repayments on this or other debts. |
| If there was a reason why you were struggling, such as illness or redundancy, explain this on your credit file. | Burry your head in the sand and hope it’ll go away. By facing up to your debt situation you can fix it. Get help from organisations like National Debtline or the Citizens Advice Bureau. |
| Get a credit builder credit card. Use it wisely and it’ll help improve your credit score. | Borrow more than you can afford and fall into a debt cycle. |
How Can I Get a Default Removed from My Credit Report?
If you have a default on your credit report, it can’t usually be removed until the six years have passed. That’s because lenders have to report your debts and how you manage them to the credit references agencies.
But there are times when the default could be removed from your credit file. These are as follows.
- When you catch up with payments before the default is issued. And it fully meets the terms set out in the default notice.
- When you and the lender reach an agreement for a payment arrangement. And you keep to the terms of that arrangement.
- When the amount outstanding is solely made up of fees or charges.
- When you can prove that all payments were made on time and the default was reported in error.
- When the default occurred due to something unexpected, you could ask the lender to remove the default. For example, it happened because of circumstances beyond your control such as redundancy. In these cases, they may consider removing the default as a gesture of goodwill. Especially if you’ve paid back the debt.
Will My Credit Score Go Up Once a Default is Removed?
Once the default is removed, your credit score will start to improve. But the exact amount your score will increase will depend on what else is happening on your credit report.
If you have other negative items on it, then your score may not increase as much as you’d like. These could be things like:
- Late or missed payments on other debts.
- High balances on credit cards.
- Other negative marks on your credit file. Examples are a County Court Judgement, or a lot of loan applications made within the year.
If your credit report is clean, then expect to see a significant jump once the default has been removed.
Can I Get a Loan if I Have a Default?
Getting approved for a new loan will be harder if you’ve got a default on your credit file. Lenders view defaults as a sign of financial distress. They’re less likely to approve new loans to borrowers who have defaulted on their loans.
But there are some lenders who specialise in considering bad credit loans. It may be possible to get approved for a loan even if you have a default on your credit record with some of the lenders. There are some brokers online who will search lenders for bad credit.
The key is to shop around and compare rates before selecting a lender. You should also be prepared to provide additional information about your financial history. You may have to explain what happened and why you’ll be able to repay the new loan. Doing this might improve your chances of getting approved for a loan even with a default on your credit report.
FAQs
Can I Ask My Lender to Remove the Default from My Credit Report?
Yes, you can ask the lender to remove the default from your credit file. But there would have to be a good reason why they’d remove it.
You’d have to be able to demonstrate that you’ve repaired the problem by doing one of these two things:
1. Making regular repayments to your lender for at least 6 months.
2. Have paid off the outstanding debt in full.
In these instances, you could try asking the lender to remove the default. This is called a goodwill adjustment. But if you haven’t been making an effort to clear the debt then the default won’t be removed.
Can Employers See the Default Notice on My Credit Report?
No, employers can’t see the default notice on your credit report. But depending on the type of job you apply for the employer might run a credit check. If they need to carry out this sort of background checks, they’ll probably see the default notice.
If an employer runs a background check on you, they must have your consent before they do.
Can Lenders See Defaults Even After 6 Years?
No, that’s so long as the default has been removed. Lenders can only see what’s been reported on your credit report in the last 6 years.
Will a Default Make My Credit Score Go Down?
Yes, a default will make your credit score go down. As it can stay on your credit file for up to 6 years, it’ll continue to impact your credit score until it’s removed.
How Many Points Will a Default Reduce from My Credit Score?
A default on your credit report will reduce your credit score by at least 80 points. This can make it difficult to get approved for new lines of credit. And it may mean you’ll pay higher interest rates on loans until it’s removed.
Defaults are best to avoid if you can. That’s why it’s important to act quickly if you think you may be at risk of receiving one.
Disclaimer: Any information provided does not constitute financial advice. Please read carefully about the terms and conditions of the credit provider you choose to take out a loan from. Any links to external websites are for reference only and are correct at time of publishing.
