What is a default and can it improve my credit score? How do you get a default? Will I be able to apply for a loan? A default can drag your credit score down and drag your hopes of securing credit. We’ll break it all down so that you do not have to fear your credit file.
What is a default?
A default or overdue debt is a type of negative credit listing that arises due to a failure in paying a credit obligation. A default can negatively affect your credit score which may make it more difficult to secure credit in the future.
A default can be placed on your credit file if you have a consumer credit account that is overdue by more than 60 days. The amount owing must also be more than $150. It is important to note that, if your debt is less than the amount and time period specified above, the default cannot be listed on your credit file.
What can you default on?
The following types of credit can lead to a default.
How can a default be listed?
If you have missed a personal loan repayment of $150 for example, and it was overdue for over 60 days, the credit company has grounds to request a default to be placed on your credit file. In saying so there are few steps that the credit providers must follow to accurately list a default on your credit file. We’ll go through these below.
Credit providers have strict guidelines to follow when listing a default.
If your account is overdue by over 60 days and the amount is more than $150 they cannot automatically list your default. The credit providers must send two separate notices to your last address. The notices can be sent either through email or to your last physical address. Notices must also contain the following information;
- Notice that you have an overdue account
- The outstanding amount
- Information notifying you that they will notify a credit reporting body if the payment is not made.
If you have not made payment after 14 days of issuing the second notice, the default can be placed on your credit filed.
What will be listed on your credit file?
For each default, the following information will be listed on your credit report
- The name of the credit provider
- The type of account
- The amount listed
- The date of the listing
How long can a default stay on your credit file?
Defaults can remain on your credit report for 5 years. If however, a default was listed incorrectly and there are grounds for removal, it can be removed earlier.
The Impact on your credit score?
A default can decrease your credit score. In simple terms, this is bad because a low credit score will make it harder for you to secure a loan in the future. Traditional lenders will assess your credit file to help determine whether or not you are a responsible or risky borrower. With access to your credit file, they will be able to see that you have a default. They will also be able to see the type and amount owing. Even if you pay off your default, the status will change to paid, but the listing will not be removed immediately.
Whilst it is not impossible to secure a loan with bad credit, your lower credit score may come with higher interest rates and potentially stricter loan terms. Bad credit loans are available online and are available for people in complicated financial situations. A default will still effect your chances of securing a bad credit loan, so check your credit score before considering this type of loan.
How can I remove defaults from my credit history?
It is possible and free to remove the default from your credit file. First, you need to establish whether there are any grounds for removal. This requires an understanding of the process and the relevant legislation involved. Secondly, it can be extremely time-consuming to chase creditors.
Alternatively, you can speak to a professional and trusted credit repair company. These companies specialise in assessing your credit file and removing any defaults. They are aware of all legislation and can quickly investigate any credit listing to see whether this is a ground for removal.
If you have been declined for credit in the past, then it may be time to get on top of your credit file. Enquire online or call us on 130 015 210 for a hassle-free consultation.