Being in debt can be a worrying time but failing to keep up with your monthly payments can lead to a default which can cause further financial pressure.
Having a default can also have a negative impact on your credit file which can make it difficult to get approved for most credit products, such as a mortgage or a loan.
What is a default?
A default is a negative marker that may be added to your credit report if you have missed payments on a debt.
There is no minimum amount of payments you have to miss for a default to be issued against you and it is up to each individual creditor when to issue a default.
Before you are issued with a default, you will be served with a default notice.
Default notices are formal letters from your creditor asking you to make up for missed payments before your account is closed and a default is issued against you.
How do I know if I’ve got a default?
Knowing whether you’ve got a default can be difficult but there is a quick and easy way to find out.
It’s important to know if you have an active default as it can stop you from being approved for credit and subject you to higher interest rates.
Checking your credit file will tell you whether you have been issued with a default within the last six years.
Your credit file can be accessed through any of the three credit reference agencies in the UK (Equifax, TransUnion, or Expedia).
If you received a default notice over 14 days ago and didn’t acknowledge or make a payment towards the debt, you will most likely have had a default issued against you.
How long will a default stay on my credit file?
If you have a default, it will be noted on your credit file for a total of six years from the date it was issued regardless of whether it has been paid partially, fully, or not at all.
Once a default has been removed from your credit file, it can’t be re-registered, even if you still owe the money.
However, your creditor will be free to take further legal action against you, such as issuing a County Court Judgment (CCJ).
Your creditor may also sell your debt to a debt collection agency or debt collector after issuing you with a default but this will be stated on your credit report to prevent it from looking like you have two separate defaults.
How will a default or default notice affect my credit rating?
Receiving a default or default notice can have a negative impact on your credit rating.
Future lenders will look at your credit score when deciding whether to approve you for credit.
If you have a default on your credit file, it means you have failed to stick to the terms of a previous credit agreement and are at risk of doing the same thing if you borrow money again.
There is no way of telling how many points your credit score will drop by when you receive a default.
This depends on what your credit score was before the default, how many missed payments you have, and how recent the missed payments were.
Generally, your credit score will drop the most in the first 12 months before gradually recovering.
Paying off the default after it has been issued won’t remove it from your credit report but it will show lenders that you have settled the debt and are less of a risk.
Can I get a default removed from my credit file?
Once a default has been recorded on your credit file, it typically can’t be removed for six years even if it has been repaid.
The only instances in which a default can be removed are if:
- There has been an error
- Six years have passed
Errors are rare but they do happen. You must check your credit reports from each of the different credit agencies regularly to ensure your credit history is accurate and up to date.
If you notice something that doesn’t look right, you must raise a credit report dispute with the relevant credit reference agency and provide proof of your claim.
They will get in touch with the relevant creditor and update your record as necessary.
During this time, a notice of correction will be added to your credit file to let lenders know that the default is currently being disputed and may have been issued in error.
How can I improve my credit score after a default?
Having a default can negatively impact your credit score for up to six years. After this time, you must take steps to improve your credit score to help you get back on your feet.
It is important to note that your credit score won’t instantly improve after settling a default and it can take some time and patience to get your credit score back to what it what before the missed payments.
Register at your current address
Some lenders use the electoral roll to confirm a borrower’s identity. If you haven’t already, registering at your current address can boost your credit score because it means you are less of a risk when it comes to fraud and identity theft.
Make payments in full and on time
The easiest way to improve your credit score after a default is to make future payments in full and on time.
Missed payments can stay on your credit file for up to six years, even if you aren’t issued with a default, and further harm your already low credit score.
Keep your credit utilisation low
Only spending a percentage of your credit limit each month can help to boost your credit score as long as you are making the minimum monthly repayments.
More missed payments can cause serious damage to your credit score so make a point to only ever borrow what you can afford after a default.