What is a Default?
A default is a sign that you can’t afford your current payments, it can lead to negative effects on your credit file which could restrict your financial options in future. This is why it’s important to know what a default is and what to do in the event that you get one.
What is a Default?
A default is what happens when you fail to make the repayments on a debt. In the event of multiple missed payments, a lender will probably decide at some point to close your account and write the debt off of their books, resulting in a default being added to your credit file. After a default is added to your account, whomever you owe (bank etc.) may move to seize assets to cover your debt. A default can happen regardless of how much money is owed. Whether you owe £10 or £10,000, if you fail to pay a bill it can result in a default. It’s important to note that missing payments for one month will not likely result in a default. Most companies will send an account into default after three to six months of missed repayments but this varies depending on the contract terms.
A default can occur on any type of debt including:
- Mobile contracts
- Bank loans
- Utilities (gas, electric and water)
- Credit cards
- Student loans
- Much more
How Does a Default Affect My Credit File?
A default causes negative effects on your credit. Defaults almost always carry financial consequences including:
- Lowering credit scores
- Lowering the chance of obtaining credit or loans in the future
- Increasing interest rates on any future loans
Much like other negative marks on your credit file, a default may stay visible on your report for up to 6 years so it’s important to stay up-to-date on monthly repayments.
How Do I Find Out if I Have A Default on My Credit File
You can order a statutory credit report from Credit Reference Agencies, or you can use Pave's Credit Spotlight tool which will give you a 360 summary of your credit file, including highlighting if you have any defaults on your credit file.
Can I Get Approved For a Loan if I Have a Default?
Yes, it’s still possible to get approved for a loan if you have a default on your credit file, however it does admittedly make it more difficult. The fact is that a default hurts your credit score which may decrease the amount of financial products you are offered. This is because companies and lenders look at your credit history to determine how likely you are to responsibly manage your money. Having a default on your file makes it increasingly more difficult to obtain a mortgage, for example, as it is usually a large debt that will require repayment over a long period of time. Any marker that makes a lender think you may not be able to handle these repayments (like a default) will impact your ability to be accepted for a mortgage.
Consider making efforts to build your credit score if you have a default on your credit file.
How Do I Fix a Default on My Credit Profile?
Unless a default was added to your credit file in error, there is no way to remove it from the record until 6 years have passed. There are a few ways to minimise the impact that a default has over time:
- Pay off the balance ASAP. While paying the balance of a default off will not remove it from your record, it will result in it being marked as ‘satisfied’. Having a satisfied default will be better received by lenders. It may not change your credit score but it may change how creditors view your file.
- As time passes, the impact of a default on your credit file fades. If you don’t have any new defaults added, you will likely find it easier to get approved for credit after a few years pass.
- Consider adding an explanation to your credit file. It’s possible to add a short note to your file explaining why you got into debt and couldn't pay your bills on time. Some lenders will be more lenient under certain circumstances such as an unplanned illness. It’s possible to leave an explanation with the three main credit reference agencies.
- Paying off a default (even if you’re doing it in stages) means whoever you owe is less likely to issue a CCJ against you to recoup the money lost. A CCJ will negatively impact your credit file.
Will My Credit Score Go Up When a Default is Removed?
Once a default falls off your credit report (typically after 6 years) you might benefit from an increase in your score but it depends on the overall health of your credit report.
Pave Helps You Build Healthy Credit The Proper Way
Taking steps to improve your credit score can help to balance out the negative effects of a default on your file. Pave has helped a community of over 300,000+ people build healthy credit by reporting monthly payments to all three credit reference agencies in the UK today. The proper path to good credit.