Having a payment default on your credit report can greatly affect your next loan application. Every credit card holder should be aware of the negative effects of having credit default.
What is default and how does it happen? Default is a record of missed payments or overdue accounts of more than 30 days based on the agreement between the lenders. Or it can be a 3 – 6 missed payments. A default mark can appear and stay on your credit report for 5 years (or more) even if you already settled the outstanding amount. This will later on become a problem if not removed.
Who checks credit history?
Having a clean credit history is very important especially if you plan to apply loans in the future. Lenders will base their decision from your credit report. The credit history reflects if you are a high risk borrower or a good borrower. They may or may not approve the loan application or provide the fund you need. This is the reason why having regular checks on your credit history is important. It is free of charge unless you want to have it within 5 days, otherwise it is free.
How to avoid defaults?
Before any defaults are marked, lenders normally write a letter informing you about the account and give you a number of days to update it. If ignored, they will report a default.
- Pay on time – Make a schedule and if possible, pay in advance.
- Avoid fines – Save cash and pay on time. It will keep you from paying penalties.
- Do not miss a payment – Find a way to avoid missing a payment, always remember that this will have an effect on your credit history.
It is difficult to have these defaults removed. The process is crucial so as much as possible keep your credit record clean.
When you borrow money, you have to show that you are a responsible borrower. By keeping your credit history clean, lenders are confident that you have the capability to pay and they can collect repayments on time. Loan approvals are much faster. In case you cannot afford to pay, inform the lender immediately so you can sort things out and find a better solution to your problem. Loans can be restructured or they can form a repayment plan for you. Communicate with your lender and don’t be scared to negotiate.