From the perspective of obtaining, credit, lenders view a default or CCJ (County Court Judgement), in a similar way, in that they are unlikely to lend to you, until these are removed. Any credit you do obtain, will be at high interest rates, and thus cost you a lot more to borrow. Your Credit Report will confirm if you have a Default, or not (Experian, Equifax and TransUnion provide credit reports in the UK).
Remember if you have paid off, any outstanding amount for a default, this will then show as ‘satisfied’ on your credit report, but still remains for 6 years (which is just as bad basically). Lenders do not necessarily focus on the amount owing just the fact there is a default on your credit report.
How Long Does a Default stay on Your Credit Report?
Once a default notice is sent, this will then stay on your Credit Report for six years, yes that’s right years…. that means you will struggle to get other finance, at all, want a mortgage, think again?
Even once the debt has been satisfied, it still remains on your credit report for six years. After which it should be removed automatically, if not contact Experian, Equifax or TransUnion to remove.
A default is an account where a consumer has not kept to the terms, e.g. non-payment. A lender must legally inform you if you are in arrears, on any credit arrangement. This is usually 3 to 6 months into being in arrears (behind on payments).
A lender must inform you that you are in arrears, with a warning letter 28 days, before a default notice is sent to you, and this is usually in the format of a formal letter.
A default notice will outline the action to be taken to resolve the outstanding amount; you will have 7 days from receiving the default notice, to action it. If you ignore this, you will be taken to court, and this then turns into a County Court Judgement (CCJ).
How to prevent getting a Default in the first place?
Obviously pay the bill on time, but If you are moving house for example change your address with your lenders and set-up a postal redirect for at least 6 months….this will mean any outstanding bills make there way to you in case you missed any.
What is the impact of a default on your ability to get other credit?
A default shows lenders you are financially stressed so it will make it difficult to get approved for mainstream credit products like mortgages, credit cards. The only credit options may all include higher interest rate products.
How does a Default affect your Credit Score?
A default will have a negative impact on your credit score (deduction of over 100) and is one of the causes to reduce it significantly alongside other more serious consequences of not paying your debt / credit commitments on time such as CCJ, IVA or Bankruptcy. It has a more detrimental affect than missed payments.
A Few Scenarios Below:
- If you have a Default by looking on your credit file, and this is a genuine error (or you have been the victim of identity fraud for example), this can be queried with all the credit reference agencies (Experian, Equifax and TransUnion) and the Lender in question, and with some chasing, this should be taken off your credit report.
- If you read on-line, there aresome arguments, that suggest some strategies which can lead to your default being removed, but these are not guaranteed to work and require a lot of persistence:
- If the default is under £500, an approach designed to invoke sympathy is suggested, writing with persistence to the lender, along the lines of the amount owing is small, we moved house so didn’t get the warning letter (if true), we have tightened up our financial situation, due to the default our family cannot obtain a mortgage etc.
- If the default is more than £500, one angle is suggesting to the lender, that they did not follow the legal procedure, which is that they must send you a warning letter 28 days, before sending the Default Notice. In writing to the bank, you are effectively asking for evidence that they sent this warning letter to you. Send all letters, recorded delivery, repeatedly asking to see the original copy of the warning letters. An example of where this may occur is if you moved house, before any notices were sent.
- Unfortunately there is no way a CCJ or Default can be removed, for reasons, such as redundancy or unemployment. You can add a ‘notice of correction’ to explain the reasons behind a default on key sections of your credit report, which is up to 200 words and lenders must read this.
