You may face a time where you are unable to pay off a debt. While this is never the intention when the debt is taken out, unexpected circumstances can come up that leave can leave you in a financially difficult position and unable to continue making payments on a loan.
This then puts you in a position of overdue debt, also known as a default. In this article, we will explain exactly what is a credit default and how to stop it from impacting your credit file.
What Is A Credit Default?
Are you wondering what is a credit default? Put simply, when you are unable to make a repayment on a loan, your debt becomes overdue. This is also known as defaulting on a loan. A default can occur when you fail to pay the interest or principal on the loan, but it only refers to debts that are over $150 and are more than 60 days overdue for payment.
When you take out a loan, you enter into a debt obligation. Failing to make payments or stopping them altogether can have serious consequences.
When examining what is a credit default, it’s important to take a look at the impact it can have on your credit file and what this can mean when it comes to taking out loans in the future.
What Is A Credit Default And How Can It Affect You?
There are many different reasons you could find yourself in the position of being unable to pay back a loan. Unforeseen circumstances can crop up in life and leave you strapped for cash when you need it most. From getting into a car accident and needing to pay for repairs to suddenly fall ill and having to pay for hospital bills. These situations don’t make you a bad borrower, but they can leave you in a bad financial position and struggling to meet repayments. When you take out a loan, you don’t plan for these unexpected situations.
What is a credit default? When you are unable to pay back a loan, you default on that loan. Once that debt is more than 60 days overdue, the company can report it to a credit reporting body, and from there that default is listed on your credit file. It will stay there for up to five years.
Your credit report stores your financial history and is a summary of how you have handled credit. This information is used to give you a credit score. A low credit score means you have a number of negative listings on your file and can make it hard to take out a loan in the future. A high credit score means you have a good financial history, which is appealing to lenders.
Essentially, defaulting on a loan can seriously affect your credit score, lowering your chances of being able to take out future loans.
What Can Be Done?
Now we know exactly what is a credit default and how it can affect our credit score, the next question to ask ourselves is what can be done about it? Firstly, if you think there has been a mistake then call the company and explain the issue and try and resolve it. If it isn’t a mistake then you need to take the right measures to fix it.
The most important thing is to sort out the loan you have defaulted on. While paying the default won’t remove the listing from your credit file, it will be updated to reflect this. If you find yourself unable to pay back the debt, call up your creditors and see if you can work out a new repayment schedule that suits your circumstances. There is plenty of help out there to get you back on track.
The next step to explore is credit repair services. These services will investigate, dispute and remove negative listings from your file and help you get back on track financially. They effectively communicate the circumstances that left you unable to pay off your loan and aim to have your credit default reviewed and removed altogether. This leaves you with the best chances of being able to take out another loan in the future.
Get Credit Repair Help Today
Clean Credit provides expert credit repair services to help get you back on track. We understand that things happen that are beyond your control but the good news is that negative listings can be removed from your credit file with our help. Here’s how it works:
- Enquire: complete an enquiry form within 30 seconds.
- Investigate: our team will take you through your credit report and discuss your credit default and how it is affecting your score.
- Dispute: we then work on disputing your case.
- Remove: if successful, your credit default(s) will be removed and your credit score restored.
Get started today and give your credit score the boost it needs.