If you’ve ever had a loan, credit card, or other type of credit agreement, you may have heard the term “default.” A default happens when you fail to make payments on your debt for at least three months. At this point, the default is recorded on your credit file and becomes part of your credit record.
Having a default on your credit file can seriously affect your credit score, making it harder to borrow money in the future. In this guide, we explain the impact of a default, what it is, how long it stays on your credit report, and what you can do about it.
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What is a default?
A default is a failure to repay a debt. This can happen when a borrower falls behind on their payments or is unable to pay the minimum amount.
When a default occurs, the lender will take the following steps:
- They’ll send you notice in a letter saying that a default will be issued. They should give you two weeks’ notice before issuing the default. This gives you time to catch up on the shortfall in your repayments and avoid the default being issued.
- The default is issued if you have missed payments over the course of three to six months, however this can vary depending on the lender. At this point the default is reported on your credit file. The default shows that you’ve broken the agreement you signed when you borrowed the money. In this agreement, you would have committed to making the payments when they were due.
After the default is issued, you still have to make arrangements to repay your debt. If you don’t, the lender may take action to recover the money that’s owed. They could:
- Take legal action to recover the money.
- Sell the debt to a debt collection agency.
- Add extra fees and charges.
How long does a default stay on your credit report?
A default stays on your credit report for six years from the date it was registered, even if you pay off the debt in full. After six years, it will automatically be removed from your credit file. However, if you do not address the debt, the lender may take further action, such as obtaining a County Court Judgment (CCJ), which can have further negative impacts on your credit rating.
If you are struggling to meet payments, contact your lender to set up a payment plan before a default is issued. This could prevent it from appearing on your credit report.
How you can recognise a default notice on my credit report
A default notice is a formal letter from a lender stating that you have not repaid a debt. There are two ways to identify a default:
- You will receive a letter from the lender at least 14 days before the default is registered.
- Once issued, the default will appear on your credit file. You can check your report with the UK’s three main credit reference agencies:
You are entitled to check your credit report for free once every 12 months.
How does a default affect your credit score?
A default negatively affects your credit score because it signals to lenders that you have broken a financial agreement. This can make it harder to obtain credit in the future, and you may be offered higher interest rates.
Lenders use your credit score to assess the level of risk in lending to you. A default indicates financial difficulty, which may make them less willing to approve applications for loans, credit cards, or mortgages. If you are approved for credit, it is likely to come with higher interest rates and stricter borrowing terms.
The more recent the default, the greater the impact on your credit score. However, as time passes and you demonstrate responsible borrowing behaviour, the impact of the default lessens.
If you have multiple defaults, the effect on your credit score will be even more severe. This can significantly limit your financial options until the defaults are removed from your report.
What should I do if I have a default on my credit file?
If you have a default, improving your credit score should be a priority. Here are some doās and donāts to help manage your credit file:
| Doās | Donāts |
| Settle your defaulted debt as soon as possible. This will show as āsatisfiedā on your credit file. | Ignore your debt. This may lead to court action or debt collection. |
| Speak with your lender about a repayment plan. | Make late or missed repayments on other debts. |
| Explain any financial difficulties (e.g. redundancy or illness) on your credit file. | Avoid the issue and hope it resolves itself. |
| Use credit responsibly to rebuild your credit score. | Borrow more than you can afford. |
How can I get a default removed from my credit report?
A default will generally remain on your credit file for six years. However, in some cases, it may be removed if:
- You paid the arrears in full before the default was issued.
- You and the lender agreed on a repayment plan, and you stuck to it.
- The default was recorded in error, and you can provide evidence.
Will my credit score improve once a default is removed?
Yes, but the extent of improvement depends on your overall credit history. If you have other negative marks on your report, such as missed payments or County Court Judgements (CCJs), your score may not increase significantly.
Can I get a loan if I have a default?
Getting approved for a loan with a default on your credit file is challenging. Lenders may see it as a sign of financial risk. However, some lenders specialise in offering personal loans to people with poor credit. If you are looking for a loan, compare rates carefully and be prepared to explain your financial situation.
FAQs
Can I ask my lender to remove a default?
Yes, but the lender will only remove a default if you have a valid reason, such as an error in reporting. Some lenders may remove a default as a goodwill gesture if you have repaid the debt in full and demonstrated responsible financial behaviour for at least six months.
Can employers see a default on my credit report?
No, employers cannot see your credit report. However, if you are applying for a financial role, the employer may conduct a credit check with your consent, and they may see the default.
Can lenders see defaults after six years?
No, once the six years have passed, the default will be removed from your credit report and will no longer be visible to lenders.
Will a default lower my credit score?
Yes. A default lowers your credit score and remains on your file for up to six years, impacting your ability to borrow money.
Disclaimer: This information does not constitute financial advice. Always check the terms and conditions of any credit provider before taking out a loan.