Impact Of A Default On Your Credit File

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Impact Of A Default On Your Credit File

This page was last updated on 1 October 2021

Impact Of A Default On Your Credit File 2021

Your credit file contains a lot of information about you, which banks and lenders use to determine whether to give you loans for houses, cars and other major purchases. In addition, there are lots of personal details such as your name, address etc.

However this is not all contained in the credit file. There is also financial information about your borrowing history so that if you have applied for any loans before they will have a good idea if you have been responsible with repayments or were late/missed payments.

It also includes data on CCJs (county court judgments), bankruptcy and individual voluntary arrangements (IVA). These types of items can stay on your record for up to six years from the date of the final judgement or default date. The IVA can remain on your file for up to 12 years.

In addition, if you have been listed in the IVA register this will also be included on your file. The negative items mentioned above won’t necessarily affect your ability to get credit but they do indicate poor money management and could result in a lender being less willing to give you a loan or offer a high interest rate when they do.

Topics that you will find covered on this page

You can listen to an audio recording of this page below.

 

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What is a default on a credit file?

When a payment on a loan, credit card or store card is more than 60 days overdue it triggers a default. This means your creditor has notified the credit reference agencies (CRA )of the default and this will be shown on your credit file.

A default can also occur when you have missed payments for other types of accounts such as hire purchase agreements or facilities with a finance company. Your lender may send you reminders to pay up before they notify the credit reference agency of the defaults but if you fail to respond this will result in them taking action too.

If you’ve been unfortunate enough to miss lots of payments then some companies may even get their debt collection agency involved. You may receive letters from both your lender and the collection agency demanding payment so make sure you respond to them quickly

Remember that although defaults stay on your credit file for six years, any late payment records will stay on there indefinitely. 

This means that even if you repaid the debt in full with all the missed payments, this won’t automatically remove the default from your file. You also need to keep an eye out for letters or phone calls asking for payment because even if it’s coming from a debt collection agency they still count as defaults and therefore could still be listed on your file.

Receiving a default notice

There are a number of reasons why you may receive a default notice:

– You made an application for credit and did not disclose any previous accounts or defaults

– The creditor believed there were grounds to suspect fraud, such as applying for credit in someone else’s name

– You gave incorrect information about your income when completing the application form or failed to disclose your full income

– You haven’t kept up the repayments on the credit agreement, hire purchase or similar arrangement, for example you miss a payment or fail to make any payments

– You’ve gone over your limit on a card

– As well as this there are also other reasons why you could receive a default notice

You can find a link to this video on Youtube here.

Reducing the negative impact of a default

There are a few things you can do if you have had one or more defaults. You should try to pay off any existing debts that are more than three months old because the longer your debts remain outstanding, the worse it looks on your file.

You could also ask for copies of your credit report from Experian, Equifax and Callcredit to see which items are included. This will allow you to discover where the defaults have been recorded so you can start taking steps to improve your credit rating.

This is where your mortgage lender, or even your mortgage adviser or mortgage broker will go for a soft or hard credit check.

If you have a good explanation for why the default occurred, such as an unexpected drop in income or job loss through no fault of your own, try contacting the lender and explaining the situation.

A default will remain on your file for six years before dropping off. This doesn’t mean to say that it can’t affect you though. After a certain amount of time has elapsed (24 months) the lender may decide to close the account and this means it will no longer appear on your credit file but by this point any interest or other charges will have been added so you could find it difficult to repay the debt.

In theory a default is removed from your file 24 months after it first appeared but if the creditor has already closed the account it will no longer be listed as a default.

Can I still get a mortgage with a default?

Many people worry that they will struggle to get a mortgage if they have had defaults on their credit file, but this is very unlikely unless you have several.

A lender will always check your credit file before granting a mortgage and the most important factor for them is whether you are able to make your monthly repayments. If you can prove that you can manage financially then it is likely that any defaults will be ignored.

For example, assume an applicant has two late payments on their file which are six years old – one of £100 four years ago and the other of £20 three years ago. Assuming these were the only defaults listed, lenders would ignore the first default as it has been more than 24 months since it was last reported meaning there’s nothing more to worry about and the only mark that would appear on their file is £20 which is not considered a large amount.

There are other factors lenders will take into account when deciding whether you’re eligible for a mortgage such as how much spare income you have available each month, but if your credit file looks healthy then it shouldn’t be difficult to get approved.

If the default is recent, this will also count against you and may lead to the lender considering you unsuitable for a loan.

If there are no late payments listed, it’s still possible that the lender will turn you down. This is because information on your credit file about loans or credit cards that have been closed down by the creditor may also be included and this can lead to them deciding that you would struggle to meet repayments, even if these were made in time.

What is a default on a credit file?

Can I get a loan with a default?

If you had a default that was recorded on your file six years ago, it is unlikely to affect your ability to get a loan because this will drop off your record after this time. 

There are loans which don’t require credit checks so the lender won’t check if any defaults are listed but these tend to be unsecured loans such as personal loans or bank overdrafts and these may not be suitable for you if you need larger amounts than £5000 or want longer than one year to repay.

If there is no information about late payments, lenders probably won’t bother checking your credit scoring at all so it’s worth trying even if there has been an isolated incident in the past.

The only way they could find out about defaults is if you give them this information yourself so it may be a sensible idea to tell them about any that have taken place. If you only have a couple of defaults then there won’t be a big issue and they may still consider offering you a loan, but if your credit file is looking poor with lots of defaults over the last few years, there’s no point wasting time applying for products which aren’t suitable.

It’s worth noting that processing times for loans can take some weeks so don’t leave applications until everything has been removed from your file or you risk having your application rejected because it takes too long. What happens when my default falls off?

If you had a default that was recorded on your file six years ago, it is unlikely to affect your ability to get a loan because this will drop off your record after this time. 

Can employers see my default?

There are no likely circumstances when an employer will be able to view your credit file, even though they may ask you for financial details if it is part of your role. Your employment status won’t appear on your file and the only reference to credit is whether you have any defaults listed. What happens if I leave my default in place?

If you do nothing about a default, this means that it will stay on your record for six years after the date it takes effect or until you make payment arrangements with the creditor who recorded it. Only then will this be removed from your file.

Tips for dealing with defaults on your credit report

If it’s more than 6 years old

If there’s a default on your file that is more than six years old, get in contact with the creditor and ask them to update it. Chances are they won’t have any records of this so may close the account down, simply adding a note in their system about why it was closed which can help to improve your rating.

Cancel credit agreement

If you owe a lot of money on a credit card or overdraft, or perhaps even if there is no outstanding balance but you haven’t used it for several months, consider cancelling the credit agreement. The entry will be removed from your file within 30 days and this can save you from having to repay each month when it would not benefit you financially anyway.

Contact the creditor

If you have defaulted on a loan agreement or credit card, contact the creditor to see if they are prepared to allow it to drop off your file after six years. This is legally allowed under Section 29 of the Data Protection Act 1998 so there’s no harm in asking them.

Get a guarantor loan

If you have several defaults on your file and would like to improve your chances of getting credit but don’t want to give false information, try a guarantor loan. These loans require someone with a better rating than you who is willing to take responsibility for the repayments and this will take some of the pressure off you as there is no need to worry about late or missed payments.

Receiving a default notice

How long does a default stay on your credit file?

  • Secured loans remain on your file for six years
  • Unsecured loans and credit cards stay on your record for six years from the date they take effect and may be removed after this time if you make payment arrangements with the creditor
  • Court orders relating to defaults remain indefinitely, although any records of court orders will not appear on a standard report as this is sensitive personal data
  • Bankruptcy remains on your file for six years from the date you are discharged or 12 years if a bankruptcy restriction order has been applied for

Does a default notice affect your credit rating?

A default notice is a letter from a creditor or lender telling you that you have missed one or more repayments. This can affect your credit rating as they may limit the number of new credit agreements and increase lending rates for future loans, but there are some caveats to be aware of

  • If the default was due to exceptional circumstances such as an accident, then the creditor must remove all black marks from your file even if it does record why these were applied
  • If a fixed rate loan agreement has ended early because of a missed repayment and the company cannot provide evidence that this happened on time, then they should mark your file with “we do not know how this entry was made” as well as noting the date of default.
  • If you have defaulted on your account but are now able to make regular repayments, contact the creditor and explain the situation. It’s likely that they will retrospectively mark your file so it is correct
Reducing the negative impact of a default

Does Your Credit Score Go Up When a Default Is Removed?

No, because your credit rating is a reflection of the information that lenders and creditors hold about you and this cannot be changed just by removing a default.

All this does is remove any black marks against you for missing payments but it doesn’t reflect well on your credibility if you have made repayment arrangements to make up for these defaults after the fact.

What’s more, lenders don’t just look at your credit score but also consider additional information such as the length of time you have had accounts on file. If this is only a few months or even years, it doesn’t give them much confidence that you will be able to meet repayments in the future

Getting defaults removed

Speak to each creditor individually once you are back up-to-date with payments and ask if they would be prepared to remove any black marks against you. They may not agree though so ensure that you offer an alternative repayment option if necessary

If they refuse or fail to respond within the next two weeks then contact their parent company who must respond within 30 days. If they fail to do this, then you can complain to the Financial Ombudsman.

Can I still get a mortgage with a default?

The Different Types of Defaults on Your Credit Report

The most common types are credit card defaults, missed or late payments on loans, such as car finance, mortgages and other bills. The reporting company, such as the mortgage lender, may give you up to six years after the default date before it is removed from your record

Deliberate defaults can stay on your file for 12 years unless there was a reasonable excuse for the missed payment. These include overdraft charges, bankruptcy orders and county court judgments (CCJs)

If you have never missed a payment but want to improve your chances of getting credit in the future, consider using guarantor loans because this way you don’t have any additional stress worrying about job changes or personal circumstances that could cause late repayments.

You won’t need to supply any upfront payment either so there’s no risk involved . If you are unable to keep up with repayments, the guarantor will be responsible for making these instead

The good news is that having a guarantor should mean your credit file shows “timely payments” for at least two years which can make all the difference when trying to establish yourself financially.

How Can Disputing a Default Impact Your Credit Score?

When you contact a reporting company and request that they remove a default, it is simply notifying them of new information. This means that the more often you dispute defaults, the less likely creditors are to believe that these were accidental

As such, ensure that you only ask about mistakes once all payments have been made up to date and do not make multiple enquiries in quick succession. If this is done too often then the credit provider may automatically refuse requests so it’s always best to err on the side of caution

If you find yourself in a position where your repayments are difficult and you wish to dispute defaults, speak to a financial adviser for more advice on next steps

Can I get a loan with a default?

Does paying defaults improve credit score?

Yes, but there’s no guarantee that the reporting company will remove them even if you pay up. Remember that late or missed payments stay on file for a considerable length of time and can make it harder to get credit from mainstream lenders

If possible, try contacting the creditor and requesting that they remove your default because this is better than paying and resolving an issue which could have been resolved without money changing hands. If they refuse then look into guarantor loans.They remove risk from lenders by having another person responsible for repayments if you are unable to make them yourself

What’s more, borrowers can borrow up to £5,000 and there is no requirement for any upfront payment. If they do pay off your debt then it will leave a positive mark on your credit file which can be beneficial when trying to get mainstream loans in the future.

What is worse, a default or CCJ?

Unfortunately, there is no easy answer to this question. A CCJ means that you have been taken to court for failing to pay a debt but can’t or won’t honour your agreement with the creditor

This could include other credit agreements, mobile phone contracts, store cards and utility bills so you may have ended up being sued because you moved house without updating details with creditors or simply fell behind on payments

A default occurs when you miss payments or are late in repaying loans, credit card bills or your mortgage. It’s important not to confuse these two as it can affect the impact they have on your credit record.

More interesting articles related to credit ratings

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what credit score is needed to rent a house?

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Article author

Katy Davies

I am a keen reader and writer and have been helping to write and produce the legal content for the site since the launch.   I studied for a law degree at Manchester University and I use that theoretical experience, as well as my practical experience as a solicitor, to help produce legal content which I hope you find helpful.

Outside of work, I love the snow and am a keen snowboarder.  Most winters you will see me trying to get away for long weekends to the slopes in Switzerland or France.

Email – katy@helpandadvice.co.uk

Frequently Asked Questions

What is a default on a credit file?

When a payment on a loan, credit card or store card is more than 60 days overdue it triggers a default. This means your creditor has notified the credit reference agencies (CRA )of the default and this will be shown on your credit file.

Receiving a default notice

There are a number of reasons why you may receive a default notice:

– You made an application for credit and did not disclose any previous accounts or defaults

– The creditor believed there were grounds to suspect fraud, such as applying for credit in someone else’s name

– You gave incorrect information about your income when completing the application form or failed to disclose your full income

Can I still get a mortgage with a default?

Many people worry that they will struggle to get a mortgage if they have had defaults on their credit file, but this is very unlikely unless you have several.

A lender will always check your credit file before granting a mortgage and the most important factor for them is whether you are able to make your monthly repayments. If you can prove that you can manage financially then it is likely that any defaults will be ignored.

Can I get a loan with a default?

If you had a default that was recorded on your file six years ago, it is unlikely to affect your ability to get a loan because this will drop off your record after this time. 

There are loans which don’t require credit checks so the lender won’t check if any defaults are listed but these tend to be unsecured loans such as personal loans or bank overdrafts and these may not be suitable for you if you need larger amounts than £5000 or want longer than one year to repay.

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