It’s easy to lose control of your finances, but don’t let it affect your credit score. Late/missing repayments can leave you in a sticky situation when it comes to borrowing money. Find out how to avoid getting a default on your credit file.
How does a default damage your credit score?
Defaults have a huge impact on your credit file. They remain on record for up to 5 years from the default date. It doesn’t matter if it’s just a few cents or a thousand dollars. The point is– your potential creditors, employers and anyone interested in your credit report will see your record. These stamps on your file come from lenders after you fail to keep up with payments. This tells other potential lenders that you are not trustworthy with your repayments. Even if you have paid a default, the default date will remain the same, will still remain on your credit report for 5 years, unless you go through the credit repair process.
The problem is—many borrowers complain that they have not received a default notice. While it’s good practice for lenders to remind payments, it is not a legal obligation. Even if they intend to default your account, they still are not obliged to inform you. This is because there is a presumption that you know the consequences of missing payments based on the terms and conditions of the loan. The only exception is when the default recorded on your account is inaccurate, or the default was issued under a Consumer Credit Act.
How to avoid getting a default
Evaluate what kept you from repaying your debts on time
Starting over means knowing the reasons why you messed up in the first place. It could be because of poor financial planning. Maybe it was because of an inaccurate credit report, or even due to a simple inability to stick to a budget. Unless you address the areas that caused your current situation, you can never move forward. Look at these reasons as a part of your past—let go of them and move forward to the future.
Eliminate anything that gets you stuck in a debt rut
Building credit means making 100% of all your payments on time, carrying a credit balance not exceeding 30% of your credit limit and not opening too many new credit accounts at the same time. It also means keep your oldest accounts open for as long as possible to build your credit age. Building credit is possible by checking your credit reports every year for possible errors and discrepancies. Being aware of what’s having a positive/negative effect on your credit file is a great first step.
Own up to your responsibility and choose to do it for yourself
Don’t pay your debts for the sake of keeping your lenders happy. Do it for yourself! Think about that dream holiday that you’d love a loan to help you pay for. Or that mortgage which you might need later down the line. Own your decision to control your finances for your own sake.
This might mean spending your earnings wisely during periods of financial difficulty. If you’re only just being able to make your credit card payment or personal loans, it’s time to do something so you can pay your balance in full. As you consistently pay the balance on your account in full each month, you also avoid using cards to make ends meet. The only time you need to dip into it is during emergencies or when it is not convenient for you to carry cash, like when you are travelling overseas.
Save money in a profit-generating account
Don’t spend every dime you earn on things that won’t give you any financial return. For example, if you spend money on an expensive cup of coffee each day, why don’t you invest the same amount of money in the stock market? While it is risky, it is still far better than drinking it all away. Another strategy is to set up an automatic cash transfer to an investment fund each month—keep your goal to 10% of your earnings or higher.
Look ahead to a brighter future and make sure you’re aware of how to avoid getting a default. If it’s already too late, then Clean Credit can help to repair your credit file. Make an enquiry today!