What does a default on your credit report mean?
If you fail to make a repayment (for your credit card, loan, etc), or you make a late payment, this could cause your credit lender to send you a default notice which could affect your ability to borrow money in the future.
Credit defaults can prove to be detrimental to your credit file, so you really need to be aware of their effects so that you can put the measures in place to prevent it from happening.
In our guide, we explain how long a default stays on your credit report, what it means by default and the 6-year rule, as well as how you can prevent an adverse credit history from happening by reducing the risk of defaulting your credit score.
What is a default on credit file?
A default on your credit file will occur if a lender decides to close your account if you’ve missed payments, usually more than once over a period of three to six months, but some lenders can be very strict about missed payments, so it may even happen the first time you miss a payment.
Any kind of credit lender can close your account with them, including mobile phone companies, utility providers such as gas, electricity and water and even banks will close your account if you miss repayments.
Regardless of how much money you’ve defaulted by, whether it’s only a few pounds or a few thousand pounds, if you start to miss your payments, the credit lender may default your account.
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What happens after a default notice?
Once you’ve received a default notice, the lender will usually ask for the full amount that you owe, rather than asking for it in regular instalments like you will have likely been paying at first.
You can offer to pay in instalments if you cannot afford the full amount all at once, but it depends on the lender as to whether they’ll be accommodating of this request.
Depending on the creditor, they may decide to escalate the issue further and take further action by passing your debt to a debt collection agency, applying to a court to take back a vehicle or other goods (depending on the type of credit that was lent), or by issuing a court order.
How bad does a default affect your credit?
A default will stay on your credit report for six years from the date that it was issued, so if you want to apply for other lines of credit during that time, it’s worth noting that it will be visible for six years.
If I default on my credit report, can I get a mortgage?
Having a default on your credit report shows lenders that you’ve had a history with bad credit and they may be less willing to lend you money, which can make it much more difficult to borrow money for things like a mortgage or any other kind of loan.
It’s not totally impossible to get a mortgage with a default on your credit report, as there are still ways to obtain a mortgage even with bad credit, but you may find it harder to do so, or you may have to agree to pay higher interest rates on your mortgage repayments in order to be eligible.
How to get a default removed from your credit file
If you think that there’s been a mistake with regards to the default record on your account, then you can ask for it to be updated or removed by raising a credit report dispute.
To do this, follow these steps:
- Get a copy of your credit report to see the default entry.
- Contact a credit reference agency such as Experian to tell them how and why it should be changed.
- The credit reference agency will then contact the lender and ask them to validate the accuracy of the data that they’ve given the CRA. During this time, so that your credit file isn’t affected too badly, the credit reference agency will add a ‘Notice of Correction’ to your report so that other lenders know that it may be inaccurate.
- The credit reference agency will let you know the lender’s response and whether they agree that the default was a mistake or not. If you wish, you can also get in contact with the lender yourself to find out their response.
- If the credit lender agrees that their data was incorrect, your report will be updated to reflect this. However, if the lender thinks that they were correct with regards to defaulting your account, but you still disagree with the decision, you will have to try and take further action with a credit reference agency.
Does your credit score go up when a default is removed (how long does it take to go up)?
Unfortunately, your credit score doesn’t tend to go up automatically just because a default has been removed from your credit file. If you have any remaining defaults on your account, it certainly isn’t likely to go up again.
However, if the default has been removed and you continue to work on improving your credit score and credit history, then you may start to see an improvement in your credit score.
Will employers know that I have a default?
In most cases, employers won’t know that you have a default as they’re not able to access this kind of information unless they routinely share their own credit data.
However, if you apply for a job with a credit lender or credit reference agency, for example, they may ask your permission to perform a full check on your file and in this case, they will see the default.
How to reduce the impact of default
There are a few things you can do to reduce the impact of a default, including:
- Make repayments as soon as possible
- The older your default, the less important it will be to lenders
- Add a note to your credit report explaining the situation and circumstances of your default to future lenders
Don't know your credit score? Check it now with multi-agency reporting website Checkmyfile - especially if you are thinking of applying for credit soon: