Having payment defaults on your credit report can dramatically affect your next loan application. Every credit card holder should be aware of the negative effects of having a bad credit score and understand how to avoid having defaults listed on their credit history.
What is a Default?
What are defaults and how do these happen? A default is a record of missed payments or overdue accounts of more than 30 days based on the agreement between the lenders. A default can also be 3 – 6 missed payments. A default can appear and stay on your credit report for 5 years or more, even if you settle the outstanding amount. This may later cause problems if not recorded accurately.
Who checks your credit history?
Having a clean credit history is important if you plan to apply for loans, finance, phone plans or credit. Lenders base a large part of their decision to offer finance on your credit report. Your credit history reflects whether you are a high or low-risk borrower. They may or may not approve the loan application or provide the funding you need. It is for this reason that having regular checks on your credit history is vitally important.
How to avoid defaults?
Before any defaults are recorded, lenders will generally send you a letter informing you about the account and give you a set time to remedy the situation. If you ignore this letter, creditors may report a default.
- Pay on time – Make a schedule and if possible, pay in advance.
- Avoid fines – Save cash and pay fines within the designated timeframe. This will also mean you don’t pay late fees or penalties.
- Do not miss a payment – Avoid missing payments, as this will have an effect on your credit history.
It is difficult to have defaults removed unless they are unlawfully listed, so it is important to try to keep your credit record clean of defaults.
When you take out a loan, you will have to show that you are a responsible borrower. By keeping your credit history clean, lenders can be more confident that you have the capacity to keep to the payment arrangement. Loan approvals are much faster when you have a strong credit history. If you ever have difficulties or financial hardship, the best course of action is to inform the lender immediately. This way the lender can make arrangements with you temporarily and gives you some breathing space during tough times. Payment terms can be restructured or creditors can set up a more sustainable payment plan for you either temporily or for the remainder of the finance. Communication with your lender is the key so don’t be scared to discuss issues with creditors.
Clean Credit is a credit repair specialist. We are experts in removing incorrectly listed defaults. If you have a bad credit score and want to improve your reputation as a borrower, we may be able to help. If you end up with defaults, then we may be able to help remove these for you. Contact one of our credit repair specialists today!